cost-plus contract

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A contract entered into by a supplier in which the goods or services provided to the customer are charged at cost plus an agreed percentage markup. This method of pricing is very common if the cost of producing the commodity is unknown or if its production will involve significant research work. However, because simple cost-plus contracts do not encourage suppliers to minimize their costs, there has been a move away from this type of contract in UK government orders with private industry.

Subjects: Accounting.

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