Cost and Price Analysis

Cost and Price Analysis Instructor:Name: Class:Finance 230Date: Period:Results: 1)Why is it important for the government to exercise good fiscal judgment when spending funds? Government employees are held responsible for use of good judgment so those excessive prices are not paid. 2)List and describe four types of market based pricing. Be sure to provide at least one (1) example of each type.

Competitive Offers – response to solicitation encouraging competing offers Established Catalog Price – Published by the seller in a regularly maintained catalog or price list Established Market Price – substantiated from sources independent of the seller: and are current sales prices established in the normal course of trade between buyers and sellers free to bargain in the market place. Established by Law or Regulation – customers are consistently impacted by the established prices. )List 3 reasons that government buyers have significant advantages in getting fair and reasonable prices. The government is the only buyer – which has a strong negotiating position on pricing. High volume purchase – suppliers like to deal with high volume buyers and are inclined to give better prices to such buyers. Anit-Deficiency Act – requires the government agencies have the money to pay for the contract work before signing the contract. 4)Compare and contrast cost, price and profit. Price refers to the amount of money that consumers have to give up to acquire goods or service.

Profit is what ever monetary amount is left after all cost has been paid. 5)List and explain the two acceptable procedures for obtaining competitive prices. Sealed Bidding – A process by which government needs are made known by a solicitation called and Invitation for Bids (IFB). Negotiation is the contracting method that ma be used when sealed bidding is inappropriate. Competitive Proposals A process by which government needs are made known by a solicitation called a Request for Quotation (RFQ) 6)Compare and contrast cost and financial accounting.

List two (2) examples each of conditions that warrant the use of cost and financial accounting procedures. Cost accounting – is a procedure which enables firms to keep track of the costs that apply to each individual contract or major task they under take. Ex cost acct. – estimate the cost of work before actually undertaking it. Financial accounting – is the accumulation of information that enables the firm to know how much total cost and profit they made in a particular period of time. Ex. 7)What are the three major classifications of costs?

Reasonable, allowable, and allocable cost Variable fixed, and semi-variable cost Direct and indirect cost 8)Compare direct and indirect costs. Direct cost – direct labor, direct materials, and some other costs specifically associated with particular contracts are classified as direct costs. Indirect cost – are any cost that are not direct. Cost that apply across the board to large parts not conveniently chargeable to one particular contract. How does the government contracting officer ensure the costs are reasonable, allowable and allocable?

Reasonable Cost – in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of a competitive business. Allowable Cost – allowability of a particular cost under cost principles must be determine using FAR Part 3. Each principle is based on laws and policies. The decision for determing allowable of a particular cost rest with the Contracting Officer. Allocable Costs – alloacable if I is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. )When may certified cost or pricing data be required? The head of an agency shall require offerors, contractors, and

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subcontractors to make cost or pricing data available as follows: An offeror for a prime contract entered into using procedures other than sealed-bid procedures shall be required to submit cost or pricing data before the award of a contract if— in the case of a prime contract, the price of the contract to the is expected to exceed $500,000; and in the case of a prime contract entered into on or before, the price of the contract to the United States is expected to exceed $100,000. n the case of a change or modification made to a prime contract referred to in subparagraph the price adjustment is expected to exceed $500,000; in the case of a change or modification, to a prime contract that was entered , the price adjustment is expected to exceed $500,000; and in the case of a change or modification not covered by clause (i) or (ii), the price adjustment is expected to exceed $100,000. 10)If the government were to determine that significant overpricing occurred because of defective cost or pricing data, what options may the contracting officer explore prior to award?

What may the contracting officer consider after award? The Truth in Negoatation Act – an examination of defective pricing in government contracting 11)Explain the level of importance associated with the detailed analysis of direct labor costs when determining a fixed-price contract. Price analysis shall be used when cost or pricing data are not required in determining the reasonableness of the prime contract price. Some firm-fixed-price contracts may entail substantially less cost risk than that of direct costs, such as material and labor, and associated indirect costs. 2)When determining proposed hourly wage rates, list three (3) options an offeror explore. Plantwide rate, Departmental Rate, and Rates by Labor Category 13)List, in comparison, what process improvements benefits realized from the learning curve and improvement curve. What are the expectations of each curve? Theroy called learning curve because it is belived thath learning workers caused most of the time saving, Studies showed that other factors, such as equipment and set-up improvements, also help reduce unit production time.

It is called various names improvement curve, experience curve and time reduction curve. 14)How does a company effectively manage the overhead expense? What are the typical expenses included in overhead? Overhead expenses are those production and nonproduction costs not readily traceable to specific jobs or processes. Overhead expenses encompass three general areas: indirect materials, indirect labor, and all other miscellaneous production expenses, such as taxes, insurance, depreciation, supplies, utilities, and repairs.

Therefore, overhead expense is part of the total costs of maintaining and staffing a business. 15)Categorize the following expenses as either Overhead or General & Administrative: a. Lease b. Entertainment Expense c. Travel Expense d. Payroll Expense e. Marketing Expense f. Mileage g. Professional Development h. Utilities i. Communications Expense j. Goodwill k. Research and Development Costs l. Taxes m. Patent Costs n. Bad Debts o. Lobbying and other Political Costs 16)The scrap allowance includes spoilage and shrinkage. List two (2) similarities and differences between the three categories.

Scrape allowance is extra amount of material or parts required to be sure that enough material will be avaible to make the final product. Scrap is unadvoidable. Spoilage is a different from scrape because it is the direct result of someone making a mistake or a machine getting out of adjustment or a similar problem. Shrinkage is another factor. This can be the result of nature. 17)Explain the following concepts: a. Underabsorption under absorption is when the actual budgeted overhead is less than the planned overhead b. Overabsorption

Occurrence of credit balance in factory-overhead account, resulting from excess of overhead applied to work-in-process inventory over the amount of overhead actually incurred. c. Exact Absorption The chances of absorbing the exact actual amount of overhead by a series of many customer billings throughout the year are nil. 18)Describe the following methods in conducting price analysis: a. Comparison of proposed prices received in response to the solicitation These methods consist of comparing offered prices to each other to decide which are reasonable b.

Comparison of prior proposed prices and contract prices with current proposed prices Method most frequently used for government price analysis when agency has had a history of contracting for the same products or services. c. Comparison with competitive published price lists Catalogs are recognized as fairly reliable guides on current prices being paid by consumers in general. Established catalog or market price. The price paid for commercial items prices for items sold in substantial. Established catalog price, Established market price, and Price paid for Commercial items. . Visual Analysis FAR 5. 404-1(b) (4) says value analysis can give insight into the relative worth of a product, and government may use it in conjunction with other price analysis techniques. 20)Facilities cost of capital is allowable if the contractor’s have which of the following: (a) Capital investment is measured, allocated to contracts and cost as required by CAS 414 (b) Contractor has adequate records to show compliance with CAS 414 (c) Estimated facilities capital cost of money is specifically proposed for the contract under which it is claimed (d) All of the above 1) Compare and contrast Distributed Facilities and Undistributed Facilities. Distributed facilities are those that are clearly and directly assigned to specific overhead or G accounts. Undistribute Facilities are facilities capital costs incurred for more than one indirect cost pool. The cost of these facilities must be allocated to the indirect cost pools that bebefit from them. 22) Facilities capital cost of money is an a. Allocatable cost b. Allowable cost c. Variable cost d. Imputed cost e. Both b and d 23).

What does the acronym CASB mean in Facilities Capital Cost of Money a, Capital Accounting System Branch b. Cost Accounting Standards Board c. Cost Analysis Standards Board d. Both a & b 24) Which form is used to calculate the capital cost of money: a. Form CASB-CMF b. DD 1861 c. SF 182 d. All of the above. 25) In which (1) one of the three ways can a contract auditor assist the contracting officer in contract pricing? Reviewing and evaluating proposed or incurred costs 26) Contracting Officers will often ascertain that the contractor’s accounting system meets this requirement by commissioning a ______________________?

Pre-award Survey of Prospective Contractor Accounting System ( PSPCAS) 27) Contract auditor is called on by a contracting officer to determine if the prospective contract meets what? Responsible financial capability standard of FAR 9. 104-1 28) What unsupported costs are proposed or incurred costs on which the auditor is unable to render an opinion? Regarding reasonable, allowability, or allocability. 29) What does the acronym DCAA mean? Defense contract Audit Agency 30) What is the total Cost Approach? How is it used?

It shows all cost incurred in the original contract estimate and were the attributes to the contract were changed. It shows the government at fault and recognizes that neither the contractor nor any third party is at fault. 31) List the two principles that prevail in measuring equitable adjustment. Some cost impact must result from the contract change The contract and government are to remain whole. 32) Why is there a format for submitting proposals for equitable adjustments and when is it used. This formal procedures is a methodical way o document the calculation of the equitable adjustment.

When contractors submit certified cost or pricing data if the expected value of the contract modification exceeds $650,00. 00. 33) What is the name of the formula that is widely used when computing unabsorbed overhead resulting from government caused delays? Eichleay Formula 34) How can contractors segregate the cost of performing changed work? They usually assign specials accounting codes to the transactions attributed to the changed work. 35) What is the main misconception about profit and fee? Negotiated profit or fee is what the contractor will actually get. 6) What three major requirements must government contracting officers adhere to according to the Contracting Officer Responsibilities (FAR 15. 404-4)? Profit fee Pre-negotiation objective, Facilities Capital Cost of Money, Statutory Limitations of Prices or Fees 37) Name six major factors bearing on profit levels for government contracts. Contractor Effort, Contract cost rack, Federal Socioeconomic programs, Capital Investments, Cost Control and other Past Accomplishments, Independent Development. 38) What is the general approach used by all the structured profit systems.

The structured profit systems establish a total profit objective by adding profit increments for various major cost inputs and for other contract factors. 39) What are the major categories listed under the approach of Profit Determination – Overhead? High skill supervision, clerical and support, depreciation or rent (complex) depreciation or rent (routine), fringe benefits administrative, routine expense, and total overhead costs. 40) List three important factors that every business must consider before doing business with the government.

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