The process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit is called?

• A. Price analysis
• B. Cost analysis
• C. Profit evaluation
• D. Economic valuation

Answer: (D)

Price analysis is the process described here. It focuses on evaluating the total proposed price to determine if it is reasonable, using market data, prior contracts, and information from competing offers. It does not involve dissecting the price into its cost elements or looking at the proposed profit. That kind of breakdown is what cost analysis covers. In practice, you perform price analysis to decide whether the overall price is fair and reasonable before delving into cost elements. If the price analysis shows the price is reasonable, no further breakdown is needed; if not, you may proceed to cost analysis to investigate the underlying costs and profit. The term “economic valuation” isn’t the standard terminology used in this context.