[Code of Federal Regulations]
[Title 48, Volume 7]
[Revised as of October 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR9904.406-50]

[Page 387-388]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
     CHAPTER 99--COST ACCOUNTING STANDARDS BOARD, OFFICE OF FEDERAL 
           PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
 
PART 9904--COST ACCOUNTING STANDARDS--Table of Contents
 
Sec. 9904.406-50  Techniques for application.

    (a) The cost of an indirect function which exists for only a part of 
a cost accounting period may be allocated on the basis of data for that 
part of the cost accounting period if the cost is:
    (1) Material in amount,
    (2) Accumulated in a separate indirect cost pool, and
    (3) Allocated on the basis of an appropriate direct measure of the 
activity or output of the function during that part of the period.

[[Page 388]]

    (b) The practices required by 9904.406-40(b) of this Standard shall 
include appropriate practices for deferrals, accruals, and other 
adjustments to be used in identifying the cost accounting periods among 
which any types of expense and any types of adjustment to expense are 
distributed. If an expense, such as taxes, insurance or employee leave, 
is identified with a fixed, recurring, annual period which is different 
from the contractor's cost accounting period, the Standard permits 
continued use of that different period. Such expenses shall be 
distributed to cost accounting periods in accordance with the 
contractor's established practices for accruals, deferrals, and other 
adjustments.
    (c) Indirect cost allocation rates, based on estimates, which are 
used for the purpose of expediting the closing of contracts which are 
terminated or completed prior to the end of a cost accounting period 
need not be those finally determined or negotiated for that cost 
accounting period. They shall, however, be developed to represent a full 
cost accounting period, except as provided in paragraph (a) of this 
subsection.
    (d) A contractor may, upon mutual agreement with the Government, use 
as his cost accounting period a fixed annual period other than his 
fiscal year, if the use of such a period is an established practice of 
the contractor and is consistently used for managing and controlling the 
business, and appropriate accruals, deferrals or other adjustments are 
made with respect to such annual periods.
    (e) The contracting parties may agree to use an annual period which 
does not coincide precisely with the cost accounting period for 
developing the data used in establishing an allocation base: Provided,
    (1) The practice is necessary to obtain significant administrative 
convenience,
    (2) The practice is consistently followed by the contractor,
    (3) The annual period used is representative of the activity of the 
cost accounting period for which the indirect costs to be allocated are 
accumulated, and
    (4) The practice can reasonably be estimated to provide a 
distribution to cost objectives of the cost accounting period not 
materially different from that which otherwise would be obtained.
    (f) When a transitional cost accounting period is required under the 
provisions of 9904.406-40(a)(3), the contractor may select any one of 
the following:
    (1) The period, less than a year in length, extending from the end 
of his previous cost accounting period to the beginning of his next 
regular cost accounting period,
    (2) A period in excess of a year, but not longer than 15 months, 
obtained by combining the period described in paragraph (f)(1) of this 
subsection with the previous cost accounting period, or
    (3) A period in excess of a year, but not longer than 15 months, 
obtained by combining the period described in paragraph (f)(1) of this 
subsection with the next regular cost accounting period.

A change in the contractor's cost accounting period is a change in 
accounting practices for which an adjustment in the contract price may 
be required in accordance with paragraph (a)(4) (ii) or (iii) of the 
contract clause set out at 9903.201-4(a).