Ontario PHBI Financial Planning & Management Practice Test

In a cost plus contract, the mark-up represents the builder's profit margin, which is added to the actual costs incurred during the project. This structure allows contractors to be reimbursed for their direct costs (like materials and labor) while also providing a means for the builder to earn a profit. The mark-up is typically specified in the contract as a percentage of the costs or as a fixed fee, ensuring that the builder receives compensation for their expertise and overhead in managing the project.

The other options do not accurately reflect the nature of a mark-up in this type of contract. The cost of labor is just one component of the overall costs, and the mark-up encompasses additional elements beyond just labor. Similarly, the total cost of land and construction involves various expenses and does not directly define the mark-up itself. Finally, while a mark-up can be expressed as a fixed percentage, it fundamentally stands as a profit margin for the builder, distinguishing it from merely being a arbitrary percentage of total expenses.