AAICC -- Statistics in Contract Pricing _ Exam 2

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Statistics in Contract Pricing

What are the 3 Useful Measures of Central Tendency

Arithmetic Mean
Median
Mode

What is Central Tendency?

The central value around which data observations tend to cluster

4 Useful Measures of Dispersion

1. Range: (high - low value)
Lower dispersion (smaller range) = more confidence
2. Variance (S2): AVG of sq. deviations between each observation & mean
3. Standard Deviation (S): sq. root of Variance
4. Coefficient of Variation: use when 2 means (i.e.- 2 samples/ data groups); measure of relative dispersion= S/mean

Stratified Sampling:- when used; how to use

used in pricing large bills of material
- Generally evaluate one group (high $ value) 100% and random sample one or more of the remaining groups. Apply decrement factor based on evaluation
- Most common sampling for cost/price analysis
- Identify items for 100% analysis
- Summarize the recommended cost for the 100% analysis category
- Group the remaining items in a separate category for analysis
- Determine the number of items to be sampled
- Randomly select items for analysis
- Develop a "decrement factor" for random sampled items.
- Apply decrement factor to the total proposed cost of all items in the category.
- Establish pre negotiation position on the cost category

Cost Estimating Relationship (CER)

Predicts a particular cost or price by using an established relationship with an independent variable. It's a form of parametric estimate

Two broad categories of indirect costs:

- Overhead
- G&A

Indirect Cost Allocation Base

- Direct Labor Hours
- Direct Labor $
- $ / Machine Hour

What are the 4 useful measures of dispersion?

- RANGE
- VARIANCE - MOST POPULAR
- STANDARD DEVIATION - MOST POPULAR
- COEFFICIENT OF VARIATION

What are the 3 classifications of direct labor?

- POSITION DESCRIPTION
- CLASS OF POSITIONS
- POSITION CLASSIFICATION PLAN

What are the 3 major types of direct labor?

- ENGINEERING -- Design, manufacturing, reliability & maintainability, quality assurance, and sustaining

- MANUFACTURING -- fabrication, assembly, and quality control

- SERVICES -- Professional services, clerical, and technical services

When evaluating direct labor, what do you look at?

LABOR HOURS & RATES

The DCAA does audit recommended rates, and the ACO is responsible for negotiating forward pricing rate agreement(s) (FPRAs). Negotiated rates can be direct labor wage rates, overhead rates and / or cost of money rates. Negotiated rates can be shown in dollars and cents or as percentages

TRUE

What are the three bases used for estimating unit prices?

CURRENT QUOTES
HISTORICAL QUOTES
INVENTORY PRICING

The purpose of regression analysis is to predict the value of a dependent variable (y) given the value of the independent variable (x); it is based on a straight-line linear relationship even when the data points do not fall on a straight line.

TRUE

When is profit/fee analysis required?

WHEN COST OR PRICING DATA ARE USED TO DEVELOP A POSITION ON CONTRACT PRICE, PROFIT/FEE ANALYSIS IS REQUIRED.

WHEN INFORMATION OTHER THAN COST OR PRICING DATA ARE USED TO DEVELOP A POSITION ON CONTRACT PRICE, PROFIT/FEE ANALYSIS MAY BE REQUIRED

What are the 3 goals of FAR profit / fee policy?

1. STIMULATE EFFICIENT CONTRACTOR PERFORMANCE

2. ATTRACT THE BEST CAPABILITIES OF QUALIFIED LARGE AND SMALL BUSINESS CONCERNS TO GOVERNMENT CONTRACTS

3. MAINTAIN A VIABLE INDUSTRIAL BASE TO MEET PUBLIC NEEDS

What are the 7 factors to consider in profit/fee analysis?

1. CONTRACTOR EFFORT
2. COST RISK
3. SOCIOECONOMIC PROGRAMS
4. CAPITAL INVESTMENT
5. COST CONTROL/PAST PERFORMANCE
6. INDEPENDENT DEVELOPMENT
7. ADDITIONAL FACTORS PRESCRIBED BY AGENCY

What is the Range (R)?

Difference between the highest (H) and the lowest (L) observed values.
Range = High Value-Low Value
The higher the range, the greater the dispersion, and less confidence you have in that number.

What is Variance S2?

The average of the squared deviations between each observation and the mean.

What is Simple Regression?

A single independent variable (X) is used to predict a single dependent variable (Y)
Dependent variable is usually price or cost.
Independent variable is a measure related to the item / service being acquired.
Y = A+BX

How is the Indirect Cost Rate Calculated

Indirect Cost Rate = Indirect Cost Pool / Indirect Cost Allocation Base

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