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The price the government pays for standard weapons purchased

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The price the government pays for standard weapons purchased [#permalink] New post 02 Jul 2007, 09:28
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A
B
C
D
E

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The price the government pays for standard weapons purchased from military contractors is determined by a pricing method called “historical costing.” Historical costing allows contractors to protect their profits by adding a percentage increase, based on the current rate of inflation, to the previous year’s contractual price.

Which of the following statements, if true, is the best basis for a criticism of historical costing as an economically sound pricing method for military contracts?

(A) The government might continue to pay for past inefficient use of funds.
(B) The rate of inflation has varied considerably over the past twenty years.
(C) The contractual price will be greatly affected by the cost of materials used for the products.
(D) Many taxpayers question the amount of money the government spends on military contracts.
(E) The pricing method based on historical costing might not encourage the development of innovative weapons.
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 [#permalink] New post 02 Jul 2007, 11:36
B, C, and D are out of scope

Between A and E, I go with A as it best weakens historical costing.
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Re: CR - Pricing [#permalink] New post 02 Jul 2007, 11:52
Amit05 wrote:
The price the government pays for standard weapons purchased from military contractors is determined by a pricing method called “historical costing.” Historical costing allows contractors to protect their profits by adding a percentage increase, based on the current rate of inflation, to the previous year’s contractual price.

Which of the following statements, if true, is the best basis for a criticism of historical costing as an economically sound pricing method for military contracts?

(A) The government might continue to pay for past inefficient use of funds.
(B) The rate of inflation has varied considerably over the past twenty years.
(C) The contractual price will be greatly affected by the cost of materials used for the products.
(D) Many taxpayers question the amount of money the government spends on military contracts.
(E) The pricing method based on historical costing might not encourage the development of innovative weapons.


I would go with C. This is defintely the basis for criticism of historical costing being an economically sound method.
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 [#permalink] New post 02 Jul 2007, 12:22
I will go for C also
AFter POE noone of the other answer choice answer choices adress the issue
Moreover, if the price of product is greatly affected by the cost of the material it is still possible that the average rate of inflation is lower than the rate of inflation of those specific materials.
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 [#permalink] New post 02 Jul 2007, 14:54
Straight A.
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 [#permalink] New post 02 Jul 2007, 16:00
A definitely.
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 [#permalink] New post 02 Jul 2007, 17:20
A it is.
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 [#permalink] New post 02 Jul 2007, 18:44
A.

If Bush Sr. signed a military contract of this sort, Bush Jr. could still be paying for it now. That's not economically sound.
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 [#permalink] New post 03 Jul 2007, 01:42
OA?
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 [#permalink] New post 03 Jul 2007, 01:48
C - definitely

As it says, inflation is not a factor for the cost
but the raw materials are basis for the contractual price. directly attacks the passage and greatly weakens the passage.

A - CR is not talking about 'past inefficient use of funds' - so out of scope.

C should be the answer.
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 [#permalink] New post 03 Jul 2007, 02:39
A.
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 [#permalink] New post 03 Jul 2007, 12:19
Juaz wrote:
Straight A.


The OA is A. Could you guys please explain why you think is the answer.
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 [#permalink] New post 03 Jul 2007, 13:46
If the OA is A then it seems that we should have viewed things from the point of view of the governement and not the contractors
  [#permalink] 03 Jul 2007, 13:46
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