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The price the government pays for standard weapons purchased

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Director
Joined: 29 Oct 2004
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The price the government pays for standard weapons purchased [#permalink]

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19 Dec 2004, 11:16
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30. The price the government pays for standard weapons purchased from military contractors is determined by a pricing method called â€œhistorical costing.â€

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VP
Joined: 18 Nov 2004
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19 Dec 2004, 13:31
"B" for me. To me the critical part of ques is "inflation rate", which is not constant as per "B" and varies significantly. Say for example, contract increases by 4% in start of the year, based on inflation rate, however, by end of yr, there is a chance that inflation didn't stay steady for that yr (that's what "B" states) and even dropped. In a case where the it actually drops as compared to the contract % increase, government will lose money and vice versa.

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Manager
Joined: 24 Aug 2004
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20 Dec 2004, 04:54
'A'.

You are expected to find an answer why, should the govt. not pay based on the pricing model suggested in the question stem.

If the arms manufacturers used inefficient methods earlier, resulting in a higher cost, then it doesn't justify that the govt. should continue to pay higher costs. Because the govt paid for inefficient ways earlier doesn't warrant that it should continue to do so.

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Director
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20 Dec 2004, 08:04
I am still confusing, how come "inefficient methods " have anything to do with "higher cost"?

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Intern
Joined: 17 Dec 2004
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20 Dec 2004, 11:26
I think the "might" in choice (A) implies that once the gov't overpaid due to inefficient pricing method, the overpayment will exist "forever" as all the later price is protected by the inflation rate adjustment.

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Director
Joined: 29 Oct 2004
Posts: 847

Kudos [?]: 261 [0], given: 0

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20 Dec 2004, 13:35
OK, I am still unclear. So what is the point we try to prove here?

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20 Dec 2004, 13:35
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The price the government pays for standard weapons purchased

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