[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: 48CFR9904.406-60]



[Page 372-373]

 

            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



[[Page 373]]



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 

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).