Critical Reasoning

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.

OA after some discussion

We need to find ways which will undermine historical costing!

IMO: B

(E) is right

I was wondering what's wrong with (A) which says that the inefficiencies are carried over to next stage in the current system of awarding contracts

Doubt it to be E

Clearly, it's A

msr4mba wrote:Clearly, it's A

Can you explain??? why (E) is more appropriate than (A)

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. (OOS)

B. The rate of inflation has varied considerably over the past twenty years. OOS
C. The contractual price will be greatly affected by the cost of materials used for the
products. Contender what if the material earlier used was high cost and now it is a very cheap material. The contractor will keep taking a more money for a relatively inexpensive weapons. Remember we need to address economic issue.
D. Many taxpayers question the amount of money the government spends on military
contracts. OOS
E. The pricing method based on historical costing might not encourage the development of
innovative weapons. OOS

E is fine,,..

coz contractors are never gonna suffer loss, because their profit is protected,
when they r getting profit, there will b no innovation....

(other competing firm who does not get contracts, will bring some change in its weapons so that it can say that "we have so and so power weapons" ,.,. )

here we r talking about only 1 firm, and if it gets business it is never gonna improve its quality or power of weapons..

HIH!!

ronnie1985 wrote:

msr4mba wrote:Clearly, it's A

Can you explain??? why (E) is more appropriate than (A)

Here you go -
https://www.beatthegmat.com/historical-c ... 14159.html