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The Final Price Adjustment: Defective Pricing

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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%

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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.

$2.19
See Also This Related BrainMass Solution

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 &

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