Final answer:
True, the 'Cost + Fixed Fee' approach corrects the issues with the 'Cost + Percent of Cost' approach by incentivizing cost control. It uses a fixed fee rather than a fee proportional to costs, which avoids unlimited contractor’s fees and encourages efficiency.
Step-by-step explanation:
The statement that the "Cost + Fixed Fee" approach was developed to correct the unlimited contractor's fee of the "Cost + Percent of Cost" approach is true. The "Cost + Percent of Cost" approach could lead to a lack of incentive for cost control, as contractors would receive a higher fee for higher costs. To address this, the "Cost + Fixed Fee" approach was introduced, setting a pre-determined fee that does not change with the costs incurred by the contractor. This encourages more efficient project management and cost-saving practices.
For instance, at a barber shop such as "The Clip Joint", total costs are composed of fixed costs like space and equipment ($160/day) and variable costs associated with hiring barbers ($80/barber/day). While the fixed costs remain unchanged, the variable costs depend on the number of barbers hired. By adding fixed and variable costs, we obtain the total costs necessary for calculating profitability and pricing services.