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