[Code of Federal Regulations]

[Title 48, Volume 7]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR9904.401-61]



[Page 355-356]

 

            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. 9904.401-61  Interpretation.



    (a) 9904.401, Cost Accounting Standard--Consistency in Estimating, 

Accumulating and Reporting Costs, requires in 9904.401-40 that a 

contractor's ``practices used in estimating costs in pricing a proposal 

shall be consistent with his cost accounting practices used in 

accumulating and reporting costs.''

    (b) In estimating the cost of direct material requirements for a 

contract, it is a common practice to first estimate the cost of the 

actual quantities



[[Page 356]]



to be incorporated in end items. Provisions are then made for additional 

direct material costs to cover expected material losses such as those 

which occur, for example, when items are scrapped, fail to meet 

specifications, are lost, consumed in the manufacturing process, or 

destroyed in testing and qualification processes. The cost of some or 

all of such additional direct material requirements is often estimated 

by the application of one or more percentage factors to the total cost 

of basic direct material requirements or to some other base.

    (c) Questions have arisen as to whether the accumulation of direct 

material costs in an undifferentiated account where a contractor 

estimates a significant part of such costs by means of percentage 

factors is in compliance with 9904.401. The most serious questions 

pertain to such percentage factors which are not supported by the 

contractor with accounting, statistical, or other relevant data from 

past experience, nor by a program to accumulate actual costs for 

comparison with such percentage estimates. The accumulation of direct 

costs in an undifferentiated account in this circumstance is a cost 

accounting practice which is not consistent with the practice of 

estimating a significant part of costs by means of percentage factors. 

This situation is virtually identical with that described in 

Illustration 9904.401-60(b)(5), which deals with labor.

    (d) 9904.401 does not, however, prescribe the amount of detail 

required in accumulating and reporting costs. The amount of detail 

required may vary considerably depending on the percentage factors used, 

the data presented in justification or lack thereof, and the 

significance of each situation. Accordingly, it is neither appropriate 

nor practical to prescribe a single set of accounting practices which 

would be consistent in all situations with the practices of estimating 

direct material costs by percentage factors. Therefore, the amount of 

accounting and statistical detail to be required and maintained in 

accounting for this portion of direct material costs has been and 

continues to be a matter to be decided by Government procurement 

authorities on the basis of the individual facts and circumstances.