A major problem with cost-plus contracts is that they
A)include costs that do not follow GAAP.
B)cause the supplier to take significant financial risks.
C)require the supplier to use variable costing.
D)create an incentive to allocate as much cost as possible to the goods produced under the contract.

Question

Quizplus · Accepted Answer

Cost-plus contracts create an incentive for suppliers to allocate as much cost as possible to the goods produced under the contract. This can lead to overcharging and inefficiency as the supplier has no incentive to control costs.

A Major Problem with Cost-Plus Contracts Is That They