What is the Total Cost of a contract defined as?

The Total Cost of a contract is defined as the sum of direct and indirect costs plus allocable cost of money. This definition encompasses all elements that contribute to the overall financial commitment of executing the contract.

Direct costs refer to expenses that can be specifically attributed to the contract, such as labor and materials. Indirect costs, on the other hand, are expenses that are not directly tied to a specific contract but are necessary for overall operations, such as administrative support or overhead. Including the allocable cost of money recognizes the financing costs associated with the capital used for the contract, ensuring that the total cost reflects all expenditures necessary for fulfilling the contract obligations.

This comprehensive view is crucial for understanding the full financial implications of a contract, allowing for better budgeting, financial planning, and transparency in contract management.