The Final Price Adjustment: Defective Pricing
Calculate the amount of the final price adjustment because of defective pricing based on the following:
Contractor unintentionally overpriced their material costs by $75,000 and under-priced their direct manufacturing labor costs by $50,000. Overhead rates used to price the original contract are given below:
Material OH 15%
Engineering OH 75%
Manufacturing OH 124%
Lawn Maintenance OH 1.5%
G & A 24%
https://brainmass.com/business/business-math/the-final-price-adjustment-defective-pricing-526546
Solution Preview
Let us consider that the costs for Material, Engineering, Manufacturing and Lawn Maintenance were originally X, Y, Z and W respectively.
Total Cost Input = (X + 15% of X) + (Y + 75% of Y) + (Z + 124% of Z) + (W + 1.5% of W)
= 1.15X + 1.75Y + 2.24Z + 1.015W
Total Cost = ...
Solution Summary
Solution starts with representing the original costs for Material, Engineering, Manufacturing and Lawn Maintenance by variables and then develops a formula to compute the final price adjustment because of defective pricing.
Defective Pricing Actions
1.What action must you take before you can require an offeror to submit cost or pricing data to support an offer priced at $95,000?
2. Calculate the amount of the final price adjustment because of defective pricing. Labor was overpriced by $15,000. Material was under-priced by $10,000. No items have been delivered. How much should the price adjustment be?
Contract As Awarded:
Material $ 80,000
Material OH 5% $ 4,000
Labor $ 40,000
Labor OH 100% $ 40,000
Total Cost Input $164,000
G & A 10% $ 16,400
Total Cost $180,400
Profit 10% $ 18,040
Total Price $198,440
6. Calculate the amount of the final price adjustment because of defective pricing based on the following:
Contractor unintentionally overpriced their material costs by $75,000 and under-priced their direct manufacturing labor costs by $50,000. Overhead rates used to price the original contract are given below:
Material OH 15%
Engineering OH 75%
Manufacturing OH 124%
Lawn Maintenance OH 1.5%
G &