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# The price the government pays for standard weapons purchased

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Manager
Joined: 03 Jul 2015
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Re: The price the government pays for standard weapons purchased  [#permalink]

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04 Jun 2016, 04:56
sagarsabnis 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.

How is A weakening the argument?
The stem says best basis for a criticism of historical costing as an economically sound pricing method for military contracts.
If the govt is using funds inefficiently, it means the govt is spending more => military contracters are able to earn more profit.
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Re: The price the government pays for standard weapons purchased  [#permalink]

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05 Oct 2016, 01:21
i think the word "inefficient" is poorly used and can cause ambiguity
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Re: The price the government pays for standard weapons purchased  [#permalink]

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14 Oct 2016, 09:51
FOR ALL THE DOUBTS ON QUESTION STEM PERSPECTIVE & CORRECT OPTION'S ACCURACY:-

It does NOT matter against which side the stem is asking for the weaker. The stem is rather asking on behalf of both sides i.e. "whether the mentioned pricing method is economically correct or not ???".

Now, correct option(i.e. A) states that - "the govt. had been incorrectly paying extra money in previous year and govt. will still continue with this..". This clearly implies that this costing system is not correct and thus not economically sound.

Guys, I too had my share of scepticism on this question. But as the saying goes - "..never doubt on an OG question", and as per popular cliche - "...GMAC is never wrong !"

Cheers !
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Re: The price the government pays for standard weapons purchased  [#permalink]

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24 Dec 2016, 02:24
sagarsabnis wrote:
And thats the OA.

I had picked E as the answer thinking that of the new weapons are not going to be developed then why should government invest in it. That was my thinking. Can anyone explain why this is wrong?

The question stem is talking about Standard weapons, which likely means things that are fixed in their capabilities and technologies. for eg: AK47. So, further innovation is not a matter of concern to the author or to the govt about procuring them.
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Re: The price the government pays for standard weapons purchased  [#permalink]

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28 Dec 2016, 02:45
sarb wrote:
gmatsaga wrote:
sarb 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?

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

Premise: Price determined by historical costing
Premise: Historical costing to protect profits
Conclusion: None

What needs to be done: Criticize historical costing

The government might continue to pay for past inefficient use of funds. - This is what we want. It will be grounds to criticize the point of historical costing.

The rate of inflation has varied considerably over the past twenty years. - If you understood the passage then this is an automatic eliminate. Inflation necessitated the need for historical pricing.

The contractual price will be greatly affected by the cost of materials used for the product. - Now this is out of scope. And of course, this won't criticize.

Many taxpayers question the amount of money the government spends on military contracts. - This is also out of scope.

The pricing method based on historical costing might not encourage the development of innovative weapons. Ah! This is a very tempting answer choice. But what makes it wrong? Read it carefully, it says "INNOVATIVE WEAPONS." The passage, in contrast, just talks about "STANDARD WEAPONS." This is a trap! This goes to show how ONE WORD COULD MAKE OR BREAK an answer choice.

thanks a lot for the explanations

I have some doubt with the explanation. I actually did not understand the statement 'The government might continue to pay for past inefficient use of funds'. Are we really concerned about how government fund is used? Whether the use is efficient and or inefficient, does that really count here? The argument is asking to weaken the the fact 'historical costing as an economically sound pricing method for military contracts'. Now what 'Economically Sound method' actually means?

I thought that the whole economy of Standard weapon is dependent on previous year’s contractual price (As per the argument). So any future indication of damaging contractual price should actually weaken the fact that this method of pricing is economically sound. That is what C is saying. So I thought C. What is your opinion here?
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Re: The price the government pays for standard weapons purchased  [#permalink]

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06 Aug 2017, 00:35
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.

GMATNinja, Could you help with this question?
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Re: The price the government pays for standard weapons purchased  [#permalink]

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03 Dec 2017, 10:24
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. -Correct. The government is continuing to make bad deals

(B) The rate of inflation has varied considerably over the past twenty years. -Incorrect. Even if it has varied, it will still increase

(C) The contractual price will be greatly affected by the cost of materials used for the products. -Cost of material is out of scope

(D) Many taxpayers question the amount of money the government spends on military contracts. -Out of scope

(E) The pricing method based on historical costing might not encourage the development of innovative weapons. -the argument is talking about standard weapons
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Re: The price the government pays for standard weapons purchased  [#permalink]

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04 Dec 2017, 10:21
gmatexam439 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. -Correct. The government is continuing to make bad deals

(B) The rate of inflation has varied considerably over the past twenty years. -Incorrect. Even if it has varied, it will still increase

(C) The contractual price will be greatly affected by the cost of materials used for the products. -Cost of material is out of scope

(D) Many taxpayers question the amount of money the government spends on military contracts. -Out of scope

(E) The pricing method based on historical costing might not encourage the development of innovative weapons. -the argument is talking about standard weapons

Thanks gmatexam439!

hazelnut, sorry for missing your question! If you still need help with this one, please use the request verbal experts' reply button and let us know what you are thinking.
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Re: The price the government pays for standard weapons purchased &nbs [#permalink] 04 Dec 2017, 10:21

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