[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: 48CFR9904.406-60]

[Page 388-389]
 
            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. 9904.406-60  Illustrations.

    (a) A contractor allocates general management expenses on the basis 
of total cost input. In a proposal for a covered negotiated fixed-price 
contract, he estimates the allocable expenses based solely on the 
estimated amount of the general management expense pool and the amount 
of the total cost input base estimated to be incurred during the 8 
months in which performance is scheduled to be commenced and completed. 
Such a proposal would be in violation of the requirements of this 
Standard that the calculation of the amounts of both the indirect cost 
pools and the allocation bases be based on the contractor's cost 
accounting period.
    (b) A contractor whose cost accounting period is the calendar year, 
installs a computer service center to begin operations on May 1. The 
operating expense related to the new service center is expected to be 
material in amount, will be accumulated in a separate indirect cost 
pool, and will be allocated to the benefiting cost objectives on the

[[Page 389]]

basis of measured usage. The total operating expenses of the computer 
service center for the 8-month part of the cost accounting period may be 
allocated to the benefiting cost objectives of that same 8-month period.
    (c) A contractor changes his fiscal year from a calendar year to the 
12-month period ending May 31. For financial reporting purposes, he has 
a 5-month transitional ``fiscal year.'' The same 5-month period must be 
used as the transitional cost accounting period; it may not be combined 
as provided in 9904.406-50(f), because the transitional period would be 
longer than 15 months. The new fiscal year must be adopted thereafter as 
his regular cost accounting period. The change in his cost accounting 
period is a change in accounting practices; adjustments of the contract 
prices may thereafter be required in accordance with paragraph (a)(4) 
(ii) or (iii) of the contract clause at 9903.201-4(a).
    (d) Financial reports to stockholders are made on a calendar year 
basis for the entire contractor corporation. However, the contracting 
segment does all internal financial planning, budgeting, and internal 
reporting on the basis of a ``model year.'' The contracting parties 
agree to use a ``model year'' and they agree to overhead rates on the 
``model year'' basis. They also agree on a technique for prorating 
fiscal year assignment of corporate home office expenses between model 
years. This practice is permitted by the Standard.
    (e) Most financial accounts and contract cost records are maintained 
on the basis of a fiscal year which ends November 30 each year. However, 
employee vacation allowances are regularly managed on the basis of a 
``vacation year'' which ends September 30 each year. Vacation expenses 
are estimated uniformly during each ``vacation year.'' Adjustments are 
made each October to adjust the accrued liability to actual, and the 
estimating rates are modified to the extent deemed appropriate. This use 
of a separate annual period for determining the amounts of vacation 
expense is permitted under 9904.406-50(b).