Financial managers use escalation to consider the effects of inflation on an acquisition program by applying:_____________

A. Compound and composite indices to program cost estimates

B. Incremental funding policy to Research, Development, Test, and Evaluation (RDT&E)appropriations requested in the Program Objectives Memorandum (POM)

C. Full funding policy to defense procurement appropriations requested in the budget

D. Inflation factors to actual costs incurred by the contractor

The effect of inflation on the profitability of a product cannot be overemphasized. At the time of inflation the profitability of a project will be reduced and the cost of capital will increase. The effect of inflation on a project can be determined by applying inflation factor.

Inflation impacts on the cash flow from a project, especially a project with a long life span.

anthougo anthougo · Answer 2 · 2022-01-01T13:28:43+01:00

Financial managers' usage of escalation to consider inflation effects ensures the application of D. Inflation factors to actual costs incurred by the contractor.

In an economy, the prices of goods and services do not remain the same over a period. Inflation and interest considerations influence increases in prices. It is required of financial managers to factor into their planning and budgets the effects of inflation.

Financial managers do not apply compound and composite indices, incremental funding, or full funding policy.

Thus, financial managers are required to consider inflation to actual costs to avoid unforeseen financial losses.

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