Which statement best captures the difference between price analysis and cost analysis?

• A. They are identical methods used to justify procurement prices.
• B. Cost analysis is about market prices, while price analysis is about cost structure.
• C. Price analysis compares supplier prices to other market prices; cost analysis examines the actual cost structure to justify the price.
• D. Price analysis is used after award; cost analysis is used before award.

Answer: (C)

In procurement, you assess prices using two approaches: price analysis and cost analysis. Price analysis compares the proposed price to market data—what other suppliers charge, published price lists, and recent competitive bids—to judge if the price is fair and reasonable without scrutinizing the supplier’s internal costs. Cost analysis, on the other hand, looks inside the vendor’s cost structure—labor, materials, overhead, and profit—to determine whether the costs behind the price are allowable, allocable, and reasonable, and to see if the overall price is supported by actual costs.

That dual focus is why the best answer states that price analysis involves market price comparisons, while cost analysis examines the actual cost structure to justify the price. The other descriptions mix up which method analyzes market prices versus internal costs and misstate when each method is typically used.