Which term is associated with reimbursing actual costs plus a fixed fee?

Which term is associated with reimbursing actual costs plus a fixed fee?

• A. Cost Plus Fixed Fee
• B. Time And Materials
• C. Firm Fixed Price With Economic Adjustments
• D. Price In Effect At Time Of Shipment

Answer: (A)

The concept being tested is how pricing under a contract handles costs and contractor profit. Reimbursing actual costs plus a fixed fee is a cost-reimbursement approach where the buyer pays the allowable actual costs incurred by the contractor and also pays a separate fixed amount as profit, regardless of the final cost. The fixed fee is negotiated upfront and does not vary with the contractor’s costs, providing a predictable incentive to manage expenses while ensuring the contractor is compensated. This is why the term that matches “reimbursing actual costs plus a fixed fee” is Cost Plus Fixed Fee. The other options don’t fit this pattern: Time and Materials involves paying for labor hours at specified rates plus materials at cost, but without a separate fixed fee; Firm Fixed Price With Economic Adjustments uses a fixed price (with possible economic adjustments) rather than reimbursing actual costs; and Price In Effect At Time Of Shipment relates to when price terms apply rather than how costs are reimbursed.

The concept being tested is how pricing under a contract handles costs and contractor profit. Reimbursing actual costs plus a fixed fee is a cost-reimbursement approach where the buyer pays the allowable actual costs incurred by the contractor and also pays a separate fixed amount as profit, regardless of the final cost. The fixed fee is negotiated upfront and does not vary with the contractor’s costs, providing a predictable incentive to manage expenses while ensuring the contractor is compensated.

This is why the term that matches “reimbursing actual costs plus a fixed fee” is Cost Plus Fixed Fee. The other options don’t fit this pattern: Time and Materials involves paying for labor hours at specified rates plus materials at cost, but without a separate fixed fee; Firm Fixed Price With Economic Adjustments uses a fixed price (with possible economic adjustments) rather than reimbursing actual costs; and Price In Effect At Time Of Shipment relates to when price terms apply rather than how costs are reimbursed.