How to Define Cost Plus Profit

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Cost plus profit is the amount of money that a vendor makes for a product based on the cost of production and an agreed upon amount of profit. Use cost plus profit to quote a product price with help from a certified public accountant in this free video on business terms.

Part of the Video Series: Business & Accounting Terms
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Video Transcript

Let's define cost plus profit. In every business arrangement for the provision of goods and services or services. The seller wants a price, the purchaser wants a price. One of the ways to quote a price, is based on the cost produce that good or service. Plus a predefined amount of profit agreed to, by the purchaser. Let's say, for example, a purchaser wants. Like the United States Army wants to buy tanks. they'll negotiate price with the builder of those tanks. For his actual cost plus an acceptable, predetermined profit of ten or twelve percent. Such that if it costs a million dollars to build a tank. And the government pays that million dollars plus ten percent. That ten percent is the profit to the provider of the tank. And it's predetermined by the contract.


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