CPPB Cost and Price Analysis 1 — Questions and Answers
Question 1: What is the primary purpose of price analysis in public procurement?
- To determine if a proposed price is fair and reasonable without examining cost elements (Correct answer)
- To review each individual cost element submitted by the vendor
- To negotiate a lower price regardless of market conditions
- To compare vendor qualifications before award
Correct answer: To determine if a proposed price is fair and reasonable without examining cost elements
Price analysis evaluates the overall proposed price against benchmarks like market prices or historical data without breaking down individual cost elements.
Question 2: Which of the following is a cost analysis technique used by public buyers?
- Comparing prices from competing vendors only
- Reviewing direct labor, materials, overhead, and profit components individually (Correct answer)
- Accepting the lowest bid without further review
- Using catalog prices as the sole basis for award
Correct answer: Reviewing direct labor, materials, overhead, and profit components individually
Cost analysis involves examining each cost element—direct labor, materials, overhead, and profit—to determine if each is allowable, allocable, and reasonable.
Question 3: Under the Federal Acquisition Regulation (FAR), when is certified cost or pricing data required?
- For all government purchases regardless of value
- When a contract is expected to exceed the threshold set by law and no exceptions apply (Correct answer)
- Only for sole-source awards under $25,000
- Whenever a vendor requests it
Correct answer: When a contract is expected to exceed the threshold set by law and no exceptions apply
Certified cost or pricing data is required for negotiated contracts exceeding the statutory threshold (currently $2 million) unless an exception such as adequate price competition applies.
Question 4: What does the term 'should-cost analysis' refer to in public procurement?
- An analysis determining what a product should cost based on efficient performance (Correct answer)
- A review of vendor invoices after contract completion
- A comparison of bids to determine the lowest price
- A market survey to identify potential suppliers
Correct answer: An analysis determining what a product should cost based on efficient performance
Should-cost analysis estimates what a product or service should cost assuming efficient contractor performance, helping buyers identify areas for cost reduction.
Question 5: Which cost is considered 'unallowable' under federal cost principles?
- Direct labor costs for work performed on the contract
- Entertainment expenses charged to a government contract (Correct answer)
- Fringe benefits paid to employees working on the contract
- Travel costs for authorized trips related to contract performance
Correct answer: Entertainment expenses charged to a government contract
Entertainment costs are specifically listed as unallowable under FAR Part 31 because they do not constitute a legitimate cost of government contract performance.
Question 6: What is a 'fully loaded labor rate' in cost analysis?
- The base wage paid to an employee before any deductions
- The direct labor rate plus fringe benefits, overhead, and general and administrative costs (Correct answer)
- The overtime premium paid for hours exceeding 40 per week
- The negotiated ceiling rate for a time-and-materials contract
Correct answer: The direct labor rate plus fringe benefits, overhead, and general and administrative costs
A fully loaded labor rate includes the base wage plus all associated indirect costs such as fringe benefits, overhead, and G&A, representing the true cost to the government.
CPPB Cost and Price Analysis 1
What is the primary purpose of price analysis in public procurement?