Update the price of a line item after shipping method is selected
You want to change the price components of the line item you're wanting to update. You can use rules for this, but since you're writing a hook, you can just call the function that Rules would use:

commerce_line_item_unit_price_amount($line_item, $amount, $component_name, $round_mode);


For example, if you want to change it to $5.00:

commerce_line_item_unit_price_amount($line_item, 500, 'base', COMMERCE_ROUND_HALF_DOWN);