What is the difference between price analysis and cost analysis?

• A. Price analysis compares proposed prices with similar items; cost analysis scrutinizes the proposed cost breakdown to determine reasonableness.
• B. Price analysis examines supplier financial statements; cost analysis compares market rates.
• C. Price analysis is used after award; cost analysis is used during proposal.
• D. Price analysis is about technical merit; cost analysis is about quality.

Answer: (A)

In procurement evaluation, you compare what is being proposed against market signals and against the supplier’s own cost structure, but you do it in two distinct ways. Price analysis is about the price itself in the context of market data—comparing the proposed price with what similar items have sold for, what catalog or published prices show, or historical pricing—without digging into how the price was built. This helps determine if the price is reasonable in the marketplace.

Cost analysis goes deeper into the makeup of the price. It examines the proposed cost breakdown—labor, materials, overhead, subcontractors, and profit—to determine whether each element is reasonable, allocable, and consistent with the scope of work. This is used when the price needs to be justified more thoroughly, such as for complex projects or when competition is limited.

So the best fit describes price analysis as market-based price comparison for similar items, and cost analysis as a detailed scrutiny of the cost elements to determine reasonableness. The other options mix up what is being examined (financial statements, market rates, or relevance to timing and quality) and don’t capture the distinct purposes of price analysis versus cost analysis.