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Statistics in Contract Pricing

### 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

### 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

### 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 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