GMAT Question of The Day: The price the government pays for standard weapons purchased

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.

Article by Take GMAT Team

Authors bio is coming up shortly.
Take GMAT Team tagged this post with: , Read 1271 articles by
1. Namit says:

I guess it would be E

2. V Pat says:

B) The rate of inflation has varied considerably over the past twenty years.

3. Gaurav says:

I think it is E.

4. valmik desai says:

A) The government might continue to pay for past inefficient use of funds.

5. Sunitha says:

I would also think, it is E.

6. vishal says:

Its E

7. aarti says:

e

8. inderkalra says:

the answer is either B or C plzz let me know

9. AP says:

a

10. deepakraam says:

I chose option C but looks my ans is wrong.

11. Abhishek says:

A

12. Rabi Kant says:

A

13. taker says:

B

14. Suseela says:

A

15. Pari says:

E

16. Chetan says:

E

17. eshwar says:

how will the answer be E ???

its A guys !!! the inefficiency of the historical costing method is that govt will end up paying for errors of the past, i.e. if inflation is more last year then a percentage added to it will be this years price.

18. visa says:

B

19. Abhishek says:

E)

20. Abhi says:

A)