ColumbiaVC wrote:A

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

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.