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unit

. The cost input base selected to represent the total activity of a business unit during a cost accounting period may be: (1) Total cost input, (2) value-added cost input, or (3) single element cost input. The determination of which cost input base best represents the total activity of a business unit must be judged on the basis of the circumstances of each business unit,

(1) A total cost input base is generally acceptable as an appropriate measure of the total activity of a business unit,

(2) Value-added cost input shall be used as an allocation base where inclusion of material and subcontract costs would significantly distort the allocation of the G&A expense pool in relation to the benefits received and where costs other than direct labor are significant measures of total activity. A Talue-added cost input base is total cost in

segment he cost object office functi penses shall causing segi forming the to disclose practices fo: penses to see

(1) For 1 expense poc

for stock or
counted for
ance with ti

(1) Where
on for stock
cost accoun
such Items
only once ir
expense alloc
tion of the

h shall be allocated only to final cost etives.

(1) The G&A expense pool of a business for a cost accounting period shall be ated to final cost objectives of that cost inting period by means of a cost input

representing the total activity of the ness unit except as provided in para

(b) (2) of this section. The cost Input selected shall be the one which best -sents the total activity of a typical cost unting period.

The allocation of the G&A expense pool ay particular final cost objectives which ve benefits significantly different from benefits accruing to other final cost obes shall be determined by special allon, (410.50(1)). - Home office expenses received by a ent shall be allocated to segment cost etives as required by 410.50(8).

(1) Except as provided in (d) (2) below, costs which do not satisfy the definition &A expenses in this Standard, but which been classified by a business unit as expenses can remain in the G&A exe pool unless they can be allocated to ness unit cost objectives on a beneficial sual relationship which is best measured base other than a cost input base.

Independent Research and Developcosts and Bidding and Proposal costs

be treated pursuant to provisions of ing laws regulations and other controlEactors. .50 Techniques for application. - G&A expenses of a segment incurred nother segment shall be removed from ncurring segment's 'G&A expense pool.

shall be allocated to the segment for h the expenses were incurred on the

of the beneficial or causal relationship een the expenses incurred and all bene

or causing segments. If the expenses mcurred for two or more segments, they

be allocated using an allocation base mon to all such segments. 3) The G&A expense pool may be com

with other expenses for allocation to cost objectives provided that:

The allocation base used for the comi pool is appropriate both for the allon of the G&A expense pool under this dard and for the allocation of the other nses; and

Provision is made to identify the comnts and total of the G&A expense pool cately from the other expenses in the bined pool.

Expenses which are not G&A expenses are insignificant in amount may be ined in the G&A expense pool for allocation nal cost objectives. ) The cost input base used to allocate G&A expense pool shall include all sigant elements of that cost input which esent the total activity of the business

put less material and subcontract costs.

that period (3) A single element cost input base, e.g.,

computation
direct labor hours or direct labor dollars,

other cost ac
which represents the total activity of a busi-
ness unit may be used to allocate the G&A

(2) A pol
expense pool where it produces equitable re shall be al
sults. A single element base may not produce worked on
equitable results where other measures of

in the cost activity are also significant in relation to to

in which su tal activity. A single element base is inap rates deterr propriate where it is an insignificant part of as provided i the total cost of some of the final cost ob

(3) Wher jectives.

clude G&A
(e) Where, prior to the effective date of

of the cost
this Standard, a business unit's disclosed or items, the
established cost accounting practice was to
use & cost of sales or sales base, that busi-

ing period i
ness unit may use the transition method set determine 1
out in Appendix A hereof.

(1) Cost Input shall include those expenses which by operation of this Standard

(J) Where

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to final cos

to issues of s

tive in relati
are excluded from the G&A expense pool receives sigi

from G&A e
and are not part of a combined pool of G&A
expenses and other expenses allocated using by the alloc
the same allocation base.

base determi
(6) (1) Allocations of the home office ex-

of this secti penses of (1) line management of particular count for th segments or groups of segments, (11) residual by a special expenses, and (lll) directly allocated ex pense poolt penses related to the management and ad jective com ministration of the receiving segment as a

received. The whole shall be included in the receiving sega

to any such cluded from by section final cost ot be excluded

ment's G&A expense pool.
(2) Any separate allocation of the ex-
penses of home office (1) centralized service
functions, (ll) staff management of specific

this pool.
Activities of segments, and (iii) central pay-
ments or accruals, which is received by a

$410.60 Illu
segment shall be allocated to the segment

(a) Busine cost objectives in proportion to the beneficial

the cost of of causal relationship between the cost ob

in its G&A e. jectives and the expense if such allocation is

puter is use Elgrificant in amount. Where a beneficial or and developr causal relationship for the expense is not agement and Identifiable with segment cost objectives, the unit as a wh expense may be included in the G&A expense computer ope

ard's definiti b) Where & segment performs home office they may rer fuzetions and also performs as an operating unless they a

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unit. The cost input base selected to repre segment having a responsibility for final sent the total activity of a business unit dur cost objectives, the expense of the home ing a cost accounting period may be: (1) office functions shall be segregated. These exTotal cost input, (2) value-added cost input, penses shall be allocated to all benefiting or or (3) single element cost input. The deter causing segments, including the segment permination of which cost input base best rep forming the home office functions, pursuant resents the total activity of a business unit to disclosed established accounting must be judged on the basis of the circum practices for the allocation of home office exstances of each business unit.

penses to segments. (1) A total cost input base is generally (1) For purposes of allocating the G&A acceptable as an appropriate measure of the expense pool, items produced or worked on total activity of a business unit.

for stock or product inventory shall be ac(2) Value-added cost input shall be used counted for as final cost objectives in accordas an allocation base where inclusion of ma ance with the following paragraphs: terial and subcontract costs would signifi (1) Where items are produced or worked cantly distort the allocation of the G&A ex on for stock or product inventory in a given pense pool in relation to the benefits received

cost accounting period, the cost input to and where costs other than direct labor are

such items in that period shall be included significant measures of total activity. A only once in the computation of the G&A value-added cost input base is total cost in

expense allocation base and in the computaput less material and subcontract costs.

tion of the G&A expense allocation rate for (3) A single element cost input base, e.g., that period and shall not be included in the direct labor hours or direct labor dollars, computation of the base or rate for any which represents the total activity of a busi other cost accounting period. ness unit may be used to allocate the G&A (2) A portion of the G&A expense pool expense pool where it produces equitable re shall be allocated to items produced or sults. A single element base may not produce worked on for stock or product inventory equitable results where other measures of in the cost accounting period or periods activity are also significant in relation to to in which such items are produced at the tal activity. A single element base is inap rates determined for such periods except propriate where it is an insignificant part of as provided in (3) below. the total cost of some of the final cost ob

(3) Where the contractor does not injectives.

clude G&A expense in inventory as part (e) Where, prior to the effective date of of the cost of stock or product inventory this Standard, a business unit's disclosed or items, the G&A rate of the cost accountestablished cost accounting practice was to ing period in which such items are issued use a cost of sales or sales base, that busi to final cost objectives may be used to ness unit may use the transition method set determine the G&A expenses applicable out in Appendix A hereof.

to issues of stock or product Inventory items. (1) Cost input shall include those ex (1) Where a particular final cost objecpenses which by operation of this Standard tive in relation to other final cost objectives are excluded from the G&A expense pool receives significantly more or less benefit and are not part of a combined pool of G&A from G&A expense than would be reflected expenses and other expenses allocated using by the allocation of such expenses using a the same allocation base.

base determined pursuant to paragraph (d) (8) (1) Allocations of the home office ex of this section, the business unit shall acpenses of (1) line management of particular count for this particular final cost objective segments or groups of segments, (11) residual by a special allocation from the G&A exexpenses, and (111) directly allocated ex pense pool to the particular final cost obpenses related to the management and ad jective commensurate with the benefits ministration of the receiving segment as a

received. The amount of a special allocation whole shall be included in the receiving seg

to any such final cost objective shall be exment's G&A expense pool.

cluded from the G&A expense pool required (2) Any separate allocation of the ex by section 410.40(a), and the particular penses of home office (1) centralized service

final cost objective's cost input data shall functions, (11) staff management of specific

be excluded from the base used to allocate activities of segments, and (iil) central pay

this pool.
ments or accruals, which is received by a
segment shall be allocated to the segment

$ 410.60 Illustrations.
cost objectives in proportion to the beneficial

(a) Business Unit A has been including or causal relationship between the cost ob

the cost of scientific computer operations jectives and the expense if such allocation is

in its G&A expense pool. The scientific comsignificant in amount. Where a beneficial or

puter is used predominately for research causal relationship for the expense is not

and development, rather than for the manidentifiable with segment cost objectives, the

agement and administration of the business

unit as a whole. The costs of the scientific expense may be included in the G&A expense pool.

computer operation do not satisfy the Stand

ard's definition of G&A expense; however, (h) Where a segment performs home office

they may remain in the G&A expense pool functions and also performs as an operating

unless they can be allocated to business unit

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base operatir its customers. The acquisition cost of the

total cost inp building is not part of the total cost input

to final cost base; however, the depreciation taken on

to construct
the building would be part of the total cost

to acquire a
input base. The costs of construction of the
small production facility are not part of the mobile equip
total cost input base. The requirements of ing facility.
Cost Accounting Standard 404 provide that equipment.
those G&A expenses which are identifiable stitutes a s
with the constructed asset and are material cost. A specia
in amount shall be capitalized as part of shall be agre
the cost of the production facility. If there that in the
are G&A expenses material in amount and whole receive
identified with the constructed asset, these the G&A exp
G&A expenses would be removed from the be represent
G&A expense pool prior to the allocation of Inclusion of
this pool to final cost objectives. The cost cost input be
of the testing device shall be part of the total
cost input base per the requirements of Cost

(h) (1) T
Accounting Standard 404 which provides

separately a
that the cost of constructed assets identical

ing segment
of (1) staff

-es using a cost input base as required 10.50(d). If C chooses not to use the ition method in 410.50(e), the conual provision requiring appropriate able adjustment of the prices of afi prime contracts and subcontracts will plemented.

Business Unit C has accounted for allocated IR&D and B&P costs in a cost separate and apart from the G&A exe pool, C may continue to account for

costs in a separate cost pool under the sion of this Standard. If C is to use a

cost input base, these costs when acted for and allocated in a cost pool ate and apart from the G&A expense will become part of the total cost inbase used by C to allocate the G&A nse pool.

Business Unit C has included selling as part of its G&A expense pool. BusiUnit C has used a cost of sales base to ate the G&A expense pool. Business C desires to continue to allocate selling

using the costs of sales base. Under provisions of this Standard, Business

C would account for selling costs as a pool separate and apart from the G&A nse pool, and continue to allocate these

over a cost of sales base. If C uses a cost input base to allocate the G&A exe pool, the selling costs will become part he total cost input base. ) (1) Business Unit D has accounted for ng costs in a cost pool separate and t from its G&A expense pool and has ated these costs using a cost of sales . Under the provisions of this Standard. ness Unit D may continue to account for e costs in a separate pool and allocate n using a cost of sales base. Business ; D has a total cost input base to allo

its G&A expense pool. The selling costs become part of the cost input base used Business Unit D to allocate the G&A exse pool. 2) During a cost accounting period, Busi

Unit D buys $2,000,000 of raw materials. Che end of that cost accounting period, 1,000 of raw materials inventory have been charged out to contracts or other

objectives. The $500,000 of raw mates are not part of the total cost input base the cost accounting period, because they o not been charged to the production of ds and services during that period. If all he $2,000,000 worth of raw material had n charged to cost objectives during the

accounting period, the cost input base the allocation of the G&A expense pool ald include the entire $2,000,000. 3) Business Unit D manufactures a variof testing devices. During a cost account

period, Business Unit D acquires and s a small building, constructs a small duction facility using its own resources, I keeps for its own use one unit of a testdevice that it manufactures and sells to

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to manufac with the contractor's regular product shall

functions re
include a full share of indirect cost.

tral paymer
(e) (1) Business Unit E produces Item
2 for stock or product inventory. The (iv) residus
business unit does not include G&A ex-

penses as su
pense as part of the inventory cost of these three indire
items for costing or financial reporting pur (11) manuf
poses. A production run of these items oc-

gineering o curred during Cost Accounting Period 1. A allocated to number of the units produced were not is

pense pool.
sued during Period 1 and are issued in Period

(2) This
2. However, those units produced in Period 1 not comply
shall be included in the cost input of that residual ex
period for calculating the G&A expense pense pool
allocation base and shall not be included in

managemer
the cost input of Period 2.

turing and
(2) Business Unit E should apply the in the ma
G&A expense rate of Period 1 to those units
of Item Z issued during Period 1 and may

neering or
apply the rate of Period 2 to the units issued

health ins in Period 2.

(3) If the practice of Business Unit E is to include G&A expense as part of the cost

in proport
relationshi
objectives.

$410.70
of stock or product inventory, the inventory
cost of all units of Item Z produced in Period

This Sta
1 and remaining in inventory at the end of

tors who Perlod 1, should include G&A expense using

Federal M the G&A rate of Period 1.

(1) (1) Business Unit F produced Item X Principles
for stock or product inventory. The business Circular
unit does not include G&A expense as part

Costs Apr
of the inventory cost of these items. A pro with State
duction run of these items was started, fin-
Ished, and placed into inventory in a single $410.80
cost accounting period. These items are is-
sued during the next cost accounting period.

(a) Th

is Octobe
(2) The cost of items produced for stock
of product inventory should be included in

1976).
the G&A base in the same year they are pro-

(b) Th duced. The cost of such items is not to be

each cont
included in the G&A base on the basis of

fiscal year
when they are issued to final cost objectives.
Therefore, the time of issuance of these items
from inventory to a final cost objective is

TRANSIT
Irrelevant in computing the G&A base.
(8) The normal productive activity of
Business Unit G includes the construction of

A busii
scribed b

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its customers. The acquisition cost of the
building is not part of the total cost input
base; however, the depreciation taken on
the building would be part of the total cost
input base. The costs of construction of the
small production facility are not part of the
total cost input base. The requirements of
Cost Accounting Standard 404 provide that
those G&A expenses which are identifiable
with the constructed asset and are material
in amount shall be capitalized as part of
the cost of the production facility. If there
are G&A expenses material in amount and
identified with the constructed asset, these
G&A expenses would be removed from the
G&A expense pool prior to the allocation of
this pool to final cost objectives. The cost
of the testing device shall be part of the total
cost input base per the requirements of Cost
Accounting Standard 404 which provides
that the cost of constructed assets identical
with the contractor's regular product shall
include a full share of indirect cost.

(e) (1) Business Unit E produces Item
Z for stock or product inventory. The
business unit does not include G&A ex-
pense as part of the inventory cost of these
Items for costing or financial reporting pur-
poses. A production run of these items oc-
curred during Cost Accounting Period 1. A
number of the units produced were not is-
sued during Period 1 and are issued in Period
2. However, those units produced in Period 1
shall be included in the cost input of that
period for calculating the G&A expense
allocation base and shall not be included in
the cost input of Period 2.

(2) Business Unit E should apply the G&A expense rate of Period 1 to those units of Item Z issued during Period 1 and may apply the rate of Period 2 to the units issued. in Period 2.

(3) If the practice of Business Unit E is to include G&A expense as part of the cost of stock or product inventory, the inventory cost of all units of Item z produced in Period 1 and remaining in inventory at the end of Period 1, should include G&A expense using the G&A rate of Period 1.

(f) (1) Business Unit F produced Item X for stock or product inventory. The business unit does not include G&A expense as part of the inventory cost of these items. A production run of these items was started, finished, and placed into inventory in a single cost accounting period. These items are issued during the next cost accounting period.

(2) The cost of items produced for stock or product inventory should be included in the G&A base in the same year they are produced. The cost of such items is not to be included in the G&A base on the basis of when they are issued to final cost objectives. Therefore, the time of issuance of these items from inventory to a final cost objective is irrelevant in computing the G&A base.

(8) The normal productive activity of Business Unit G includes the construction of

base operating facilities for others. G uses a total cost input base to allocate G&A expense to final cost objectives. As part of a contract to construct an operating facility. G agrees to acquire a large group of trucks and other mobile equipment to equip the base operating facility. G does not usually supply such equipment. The cost of the equipment constitutes a significant part of the contract cost. A special G&A allocation to this contract shall be agreed to by the parties if they agree that in the circumstances the contract as a whole receives substantially less benefit from the G&A expense pool than that which would be represented by a cost allocation based on inclusion of the contract cost in the total cost input base.

(h) (1) The home office of Segment H separately allocates to benefiting or causing segments significant home office expenses of (1) staff management functions relative to manufacturing (11) staff management functions relative to engineering, (111) central payment of health insurance costs and (lv) residual expenses. H receives these expenses as separate allocations. H maintains three indirect cost pools: (1) G&A expense, (11) manufacturing overhead and (111) engineering overhead: all home office expenses allocated to H are included in H's G&A expense pool.

(2) This accounting practice of H does not comply with § 410.50(g) (2). Home office residual expenses should be in the G&A expense pool, and the expenses of the staff management functions relative to manufacturing and engineering should be included in the manufacturing overhead and engineering overhead pools, respectively. The health insurance costs should be allocated in proportion to the beneficial and casual relationship between these costs and H's cost objectives. § 410.70 Exemptions.

This Standard shall not apply to contractors who are subject to the provisions of Federal Management Circular 73-8 (Cost Principles for Educational Institutions) or Circular 744 (Principles for Determining Costs Applicable to Grants and Contracts with State and Local Governments). § 410.80 Effective date.

(a) The effective date of this Standard is October 1, 1976 (41 FR 27311, July 2, 1976).

(b) This Standard shall be followed by each contractor after the start of his next fiscal year beginning after January 1, 1977.

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APPENDIX A

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TRANSITION FROM A COST OF SALES OR SALES

BASE TO A COST INPUT BASE

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A business unit may use the method described below for transition from the use of

§ 1-7.203-21

Title 41- Public Contracts, Property Management

under the terms of this contract, the property described as Government-furnished property in the Schedule or specifications, together with such related data and information as the Contractor may request and as may reasonably be required for the intended use of such property (hereinafter referred to as "Government-furnished Property"). The delivery or performance dates for the supplies or services to be furnished by the Contractor under this contract are based upon the expectation that Government-furnished property suitable for use will be delivered to the Contractor at the times stated in the Schedule or, if not so stated, in sufficient time to enable the Contractor to meet such delivery or performance dates. In the event that Government-furnished property is not dellv. ered to the Contractor by such time or times, the Contracting Officer shall, upon timely written request made by the Contractor make & determination of the delay, if any, occasioned the Contractor and shall equitably adjust the estimated cost, fixed fee, or delivery or performance dates, or all of them, and any other contractual provisions affected by any such delay, in accordance with the procedures provided for in the clause of this contract entitled "Changes." In the event that Government-furnished property is received by the Contractor in a condition not suitable for the intended use, the Contractor shall, upon receipt thereof notify the Contracting Officer of such fact and, as directed by the Contracting Officer, either (1) return such property at the Government's expense or otherwise dispose of the property, or (2) effect repairs or modifications. Upon completion of (1) or (2), above, the Contracting Officer upon written request of the Contractor shall equitably adjust the estimated cost, fixed fee, or delivery or performance dates, or all of them, and any other contractual provision affected by the return or disposition, or the repair or modification in accordance with the procedures provided for in the clause of this contract entitled "Changes." The foregoing provisions for adjustment are exclusive and the Government shall not be liable to suit for breach of contract by reason of any delay in delivery of Government-furnished property or delivery of such property in a condition not suitable for its intended use.

(b) (1) By notice in writing, the Contracting Officer may (1) decrease the property furnished or to be furnished by the Government under this contract, or (11) substitute other Government-owned property for property to be furnished by the Government, or to be acquired by the Contractor for the Government, under this contract. The Contractor shall promptly take such action as the Contracting Officer may direct with respect to the removal and shipping of property covered by such notice.

(2) In the event of any decrease in or substitution of property pursuant to paragraph (1), above, or any withdrawal of authority to use property provided under

any contract or lease, which property the Government had agreed in the Schedule to make available for the performance of this contract, the Contracting Officer, upon the written request of the Contractor (or, if the substitution of property causes a decrease in the cost of performance, on his own initiative), shall equitably adjust such contractual provisions as may be affected by the decrease, substitution, or withdrawal, in accordance with the procedures provided for in the "Changes" clause of this contract.

(c) Title to all property furnished by the Government shall remain in the Government. Title to all property purchased by the Contractor, for the cost of which the Contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pass to and vest in the Government upon delivery of such property by the vendor. Title to other property, the cost of which is relmbursable to the Contractor under the contract, shall pass to and vest in the Government upon (1) issuance for use of such property in the performance of this contract, or (2) commencement of processing or use of such property in the performance of this contract, or (3) reimbursement of the cost thereof by the Government in whole or in part, whichever first occurs. All Governmentfurnished property, together with all property acquired by the Contractor title to which vests in the Government under this paragraph, are subject to the provisions of this clause and are hereinafter collectively referred to as "Government property." Title to the Government property shall not be affected by the incorporation or attachment thereof to any property not owned by the Government, nor shall such Government property, or any part thereof, be or become à fixture or lose its identity as personality by reason of affixation to any realty.

(d) The Contractor shall be directly responsible for and accountable for all Government property provided under this contract. The contractor shall establish and maintain a system to control, protect, preserve, and maintain all Government property. This system shall, upon request by the Contracting Officer, be submitted for review and, if satIsfactory, approved in writing by the Contracting Officer. The Contractor shall maintain and make available such records as are required by the approved system and must account for all Government property until relieved of responsibility therefor in accordance with the written instructions of the Contracting Officer. To the extent directed by the Contracting Officer, the Contractor shall identify Government property by marking, tagging, or segregating in such manner as to clearly indicate its ownership by the Government.

(e) The Government property shall, unless otherwise provided herein or approved by the Contracting Officer, be used only for the performance of this contract.

(1) The Contractor shall maintain and administer, in accordance with sound in

352

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