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CR Wrong Turn OG 30

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CR Wrong Turn OG 30

by mundasingh123 » Tue Jul 26, 2011 7:08 am
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 Later
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by GmatKiss » Tue Jul 26, 2011 8:39 am
IMO: B

The costing method is based on the rate of inflation,and if the rate of inflation vary considerably, the costing may become costlier, which means lesser profits!
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by ColumbiaVC » Tue Jul 26, 2011 11:15 am
A
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by mundasingh123 » Tue Jul 26, 2011 11:25 am
ColumbiaVC wrote:A
Hi columbiaVC where are you located ?
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by BlindVision » Tue Jul 26, 2011 12:04 pm
mundasingh123 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.

OA Later
C
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by mundasingh123 » Tue Jul 26, 2011 12:36 pm
The OA is A . Why so ? E also weakens the conclusion
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by dodgeforgmat » Tue Jul 26, 2011 9:09 pm
@Mundasingh123,
E does not weaken the conclusion. The premise clearly states 'Standard Weapons' and there is no mention of development of innovative weapons. Hence, statement E, if true, does not affect 'Standard Weapons'
Prephrasing the answer, I came up with 2 possiblities

1. Any answer choice that will show that the contractors earn more than their protected profit by use of historical costing.
2. Any answer choice that will show that the government pays more than what the standard weapons are worth with the current inflation rate.

Answer choice A shows that there were inefficient use of funds in the past. Historical costing method uses past cost of standard weapon along with current inflation rate to determine the current price. Since the past cost was inflated, the current price would be higher. This is in line with my 2nd prephrase.

Hope this makes it clear.
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by winniethepooh » Tue Jul 26, 2011 9:46 pm
Hey thats a good question!
What is the source?
Whats the explanation for C being wrong?
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by mundasingh123 » Tue Jul 26, 2011 10:11 pm
dodgeforgmat wrote:@Mundasingh123,
E does not weaken the conclusion. The premise clearly states 'Standard Weapons' and there is no mention of development of innovative weapons. Hence, statement E, if true, does not affect 'Standard Weapons'
Prephrasing the answer, I came up with 2 possiblities

1. Any answer choice that will show that the contractors earn more than their protected profit by use of historical costing.
2. Any answer choice that will show that the government pays more than what the standard weapons are worth with the current inflation rate.

Answer choice A shows that there were inefficient use of funds in the past. Historical costing method uses past cost of standard weapon along with current inflation rate to determine the current price. Since the past cost was inflated, the current price would be higher. This is in line with my 2nd prephrase.

Hope this makes it clear.
In Weaken questions we have to consider even the new information in the answer choices true .
The question stem is "Which of the following statements, if true, is the best basis"
A weakening Option doesn't have to contain only the info info given in the Stimulus all the time
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by Frankenstein » Tue Jul 26, 2011 10:34 pm
Hi,
Even I had a problem with the interpretation of this question while I was solving this couple of weeks back but later realized my mistake. You can follow Mitch's post at the following link. This might help you.

https://www.beatthegmat.com/historical-c ... 14159.html
Cheers!

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