12 214 Cost Accounting Standards.

16 Mar 12 214 Cost Accounting Standards.

Navigating Cost Accounting Standards (CAS) can prove challenging for government contractors. CAS are mandatory for use by prime contractors and subcontractors to estimate, accumulate and report costs, and to settle disputes for procurements with the U.S. government unless an exemption applies. A cost accounting practice can be defined as any disclosed or established accounting method or technique used for the measurement of a cost, assignment of a cost to accounting periods, or the allocation of cost-to-cost objectives. The role of the Cost Accounting Standards Board (CASB) is to promote consistency and uniformity of contractor cost accounting practices and proper allocation of costs for government grants and contracts through the issuance of standards.

The provisions of this Cost Accounting Standard should enhance uniformity and consistency in accounting for pension costs. (iii) Conversely, as shown in Table 5 for Segments 2 through 7, the total liability for the period of $15,046,600 exceeds the total minimum liability for the period of $14,955,860 for Segments 2 through 7. Therefore, the contractor must measure the pension cost using the actuarial accrued liability and normal cost without regard for the minimum actuarial liability and minimum normal cost.

(b) A contractor incurs, and separately identifies, as a part of his manufacturing overhead, certain costs which are expressly unallowable under the existing and currently effective regulations. In any determination of unallowable cost overrun, the amount thereof shall be identified in terms of the excess of allowable costs over the ceiling amount, rather than through specific identification of particular cost items or cost elements. All costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives. No final cost objective shall have allocated to it as an indirect cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective. Further, no final cost objective shall have allocated to it as a direct cost any cost, if other costs incurred for the same purpose, in like circumstances, have been included in any indirect cost pool to be allocated to that or any other final cost objective. The purpose of this standard is to require that each type of cost is allocated only once and on only one basis to any contract or other cost objective.

1. Under ABC, the trinkets are assigned more overhead related to labor and the widgets are assigned more overhead related to machine use.
2. In that circumstance, the base selected to measure the allocation of the pooled costs to cost objectives shall be a base representative of the activity being managed or supervised.
3. (i) An accelerated method of depreciation is appropriate where the expected consumption of asset services is significantly greater in early years of asset life.
4. (1) Compensated personal absence means any absence from work for reasons such as illness, vacation, holidays, jury duty or military training, or personal activities, for which an employer pays compensation directly to an employee in accordance with a plan or custom of the employer.
5. Read on to learn more about the essential features of CAS and important complexities related to requirements, applicability, exemptions, types of coverage, compliance and enforcement, disclosure statements, cost accounting practice changes and audits.

This application of pooled costs to Government contracts would be a violation of this Standard because the lump sum adjustment to all of the various categories of material is, in effect, a noncurrent repricing of the material issues. (5) The calculations set forth in subparagraphs (1)–(4) of this appendix shall be performed for each cost accounting period during which final cost objectives described in (2) are being performed. Where a beneficial or causal relationship for the expense is not identifiable with segment cost objectives, the expense may be included in the G&A expense pool.

An employee who is laid off for lack of work will also be paid a pro-rata vacation allowance for service since the employee’s last anniversary date. Company A accrues vacation costs each month based on an estimate of the anniversary years which will be completed in that month. At the end of its cost accounting period, Company A adjusts its estimated liability to agree with its actual liability for completed years of service on an individual employee basis. (b) A contractor shall follow consistent practices in his selection of the cost accounting period or periods in which any types of expense and any types of adjustment to expense (including prior-period adjustments) are accumulated and allocated.

604 Processing changes to disclosed or established cost accounting practices.

(c) The cost of each award of deferred compensation shall be considered separately for purposes of measurement and assignment of such costs to cost accounting periods. However, if the cost of deferred compensation for the employees covered by a deferred compensation plan can be measured and assigned with reasonable accuracy on a group basis, separate computations for each employee are not required. (1) A facilities capital cost of money factor shall be determined for each indirect cost pool to which a significant amount of facilities capital has been allocated and which is used to allocate indirect costs to final cost objectives. (7) After the initial allocation of assets, the contractor shall maintain a record of the portion of subsequent contributions, permitted unfunded accruals, income, benefit payments, and expenses attributable to the segment, and paid from the assets of the pension plan.

(f) Cost input shall include those expenses which by operation of this Standard are excluded from the G&A expense pool and are not part of a combined pool of G&A expenses and other expenses allocated using the same allocation base. (7) Segment means one of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility https://1investing.in/ for profit and/or producing a product or service. The terms include Government-owned contractor-operated (GOCO) facilities, and joint ventures and subsidiaries (domestic and foreign) in which the organization has a majority ownership. The term also includes those joint ventures and subsidiaries (domestic and foreign) in which the organization has less than a majority of ownership, but over which it exercises control.

Cost Optimization Strategies for Resilient Growth

The asset need not be capitalized unless the contractor’s revised policy establishes a minimum cost criterion below $900. Capitalization shall be based upon a written policy that is reasonable and consistently applied. (1) All home office expenses which are not allocable in accordance with paragraph (a) of this subsection and paragraphs (b)(1) through (b)(5) of this subsection shall be deemed residual expenses. Typical residual expenses are those for the chief executive, the chief financial officer, and any staff which are not identifiable with specific activities of segments. Residual expenses shall be allocated to all segments under a home office by means of a base representative of the total activity of such segments, except where paragraph (c) (2) or (3) of this subsection applies. These will vary from industry to industry and firm to firm, however certain cost categories will typically be included (some of which may overlap), such as direct costs, indirect costs, variable costs, fixed costs, and operating costs.

(6) If, prior to the time a contractor is required to use this Standard, it has been calculating pension cost separately for individual segments, the amount of assets previously allocated to those segments need not be changed. (i) Under the first plan, in which the benefits are not subject to a collective bargaining agreement, the contractor’s actuary believes that the contractor will be required to increase the level of benefits by specified percentages over the next several years based on an established pattern of benefit improvements. In calculating pension costs for this first plan, the contractor may not assume future benefits greater than that currently required by the plan. (b) The costs of compensated personal absence for an entire cost accounting period shall be allocated pro-rata on an annual basis among the final cost objectives of that period.

(e) Each agency must report any waivers granted under paragraph (a) of this subsection to the CAS Board, on a fiscal year basis, not later than 90 days after the close of the Government’s fiscal year. Cognizant Federal agency official (CFAO) means the contracting officer assigned by the cognizant Federal agency to administer the CAS. Previously, contracts where performance would have been performed entirely outside the United States (including territories and possessions) were also exempt, but this exemption was removed for new contracts effective October 11, 2011. (iii) Another method the results of which approximate those achieved by either of the methods in subdivisions (e)(4)(i) or (e)(4)(ii) of this subsection. (ii) The use of the basic unit of output will not reflect the proportional consumption of resources in circumstances in which the level of resource consumption varies among the units of output produced. Where a material difference will result, either the output measure shall be modified or more than one output measure shall be used to reflect the resources consumed to perform the activity.

102 Cost Accounting Standards Board Publication.

The cost input base selected shall be the one which best represents the total activity of a typical cost accounting period. (a) An auditor recommends disallowance of certain direct labor and direct materials costs, for which a billing has been submitted under a contract, on the basis that these particular costs were not required for performance and were not authorized by the contract. The contracting officer issues a written decision which supports the auditor’s position that the questioned costs are unallowable. Following receipt of the contracting officer’s decision, the contractor must clearly identify the disallowed direct labor and direct material costs in his accounting records and reports covering any subsequent submission which includes such costs. Also, if the contractor’s base for allocation of any indirect cost pool relevant to the subject contract consists of direct labor, direct material, total prime cost, total cost input, etc., he must include the disallowed direct labor and material costs in his allocation base for such pool.

Any such types of payments or accruals which cannot be identified specifically with individual segments shall be allocated to benefitted segments using an allocation base representative of the factors on which the total payment is based. (1) An indirect cost pool is homogeneous if each significant activity whose costs are included therein has the same or a similar beneficial or causal relationship to cost objectives as the other activities whose costs are included in the cost pool. It is also homogeneous if the allocation of the costs of the activities included in the cost pool result in an allocation to cost objectives which is not materially different from the allocation that would result if the costs of the activities were allocated separately. Consistent application of these criteria and guidance will improve classification of costs as direct and indirect and the allocation of indirect costs. (2) If the deferred compensation award provides for payment of principal plus interest at a rate not fixed at the time of award but based on a specified index which is determinable in each applicable cost accounting period; e.g., a published corporate bond rate, such interest shall be included in the computation of the amount of future benefit.

The Board and other government officials said that eliminating CAS requirements to rely purely on GAAP would limit the government’s ability to protect its interests. When contracting for goods and services, the government uses Cost Accounting Standards to help ensure contractors accurately represent their costs and make contract cost information more comparable. CAS applies to contracts, not contractors, through Federal Acquisition Regulation clauses. A company may have contracts that are subject to “full” CAS coverage (be required to follow all 19 standards), “modified” CAS coverage (required to follow only Standards 401, 402, 405, and 406), simultaneously have contracts that are subject to either modified or full coverage, or be exempt from coverage. However, a company under “full” coverage is not subject to a standard where it does not apply (e.g., a company which does not use standard costing does not have to comply with CAS 407).

(2) The IR&D costs incurred in a cost accounting period shall not be assigned to any other cost accounting period, except as may be permitted pursuant to provisions of existing laws, regulations, and other controlling factors. (1) The B&P costs incurred in a cost accounting period shall not be assigned to any other cost accounting period. (2) Preestablished rates shall reflect the costs and activities anticipated for the cost accounting period except as provided in paragraph (g)(3) of this subsection. Such preestablished rates shall be reviewed at least annually, and revised as necessary to reflect the anticipated conditions.

(12) Funded pension cost means the portion of pension cost for a current or prior cost accounting period that has been paid to a funding agency. (e) Where, prior to the effective date of this Standard, a business unit’s disclosed or established cost accounting practice was to use a cost of sales or sales base, that business unit may use the transition method set out in appendix A hereof. (a) G&A expenses of a segment incurred by another segment shall be removed from the incurring segment’s G&A expense pool. They shall be allocated to the segment for which the expenses were incurred on the basis of the beneficial or causal relationship between the expenses incurred and all benefiting or causing segments. If the expenses are incurred for two or more segments, they shall be allocated using an allocation base common to all such segments.

CAS Applicability, Exemptions and Types of Coverage

(b) Tangible capital assets constructed or fabricated by a contractor for its own use shall be capitalized at amounts which include all indirect costs properly allocable to such assets. When the constructed assets are identical with or similar to the contractor’s regular product, such assets shall be capitalized at amounts which include a full share of indirect costs. (4) Under paragraphs (g) (2) and (3) of this subsection where variances of a cost accounting period are material, these variances shall be disposed of by allocating them to cost objectives in proportion to the costs previously allocated to these cost objectives cost accounting standards by use of the preestablished rates. (5) Where the activities represented by an indirect cost pool provide services to two or more cost objectives simultaneously, the cost of such services shall be prorated between or among the cost objectives in reasonable proportion to the beneficial or causal relationship between the services and the cost objectives. (1) The costs of the management or supervision of activities involving direct labor or direct material costs do not have a direct and definitive relationship to the benefiting cost objectives and cannot be allocated on measures of a specific beneficial or causal relationship.

(18) Normal cost means the annual cost attributable, under the actuarial cost method in use, to current and future years as of a particular valuation date, excluding any payment in respect of an unfunded actuarial liability. (e) A contractor has established inventories for various categories of material which are used on Government contracts. During the year the contractor allocates the costs of the units of the various categories of material issued to contracts by the moving average cost method. The contractor uses the LIFO method for tax and financial reporting purposes and, at year end, applies a pooled LIFO inventory adjustment for all categories of material to Government contracts.