[Code of Federal Regulations]
[Title 48, Volume 1]
[Revised as of October 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR31.205-26]

[Page 629-630]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
                CHAPTER 1--FEDERAL ACQUISITION REGULATION
 
Sec. 31.205-26  Material costs.

    (a) Material costs include the costs of such items as raw materials, 
parts, subassemblies, components, and manufacturing supplies, whether 
purchased or manufactured by the contractor, and may include such 
collateral items as inbound transportation and in-transit insurance. In 
computing material costs, the contractor shall consider reasonable 
overruns, spoilage, or defective work (unless otherwise provided in any 
contract provision relating to inspecting and correcting defective 
work).
    (b) The contractor shall--
    (1) Adjust the costs of material for income and other credits, 
including available trade discounts, refunds, rebates, allowances, and 
cash discounts, and credits for scrap, salvage, and material returned to 
vendors; and
    (2) Credit such income and other credits either directly to the cost 
of the material or allocate such income and other credits as a credit to 
indirect costs. When the contractor can demonstrate that failure to take 
cash discounts was reasonable, the contractor does not need to credit 
lost discounts.
    (c) Reasonable adjustments arising from differences between periodic 
physical inventories and book inventories may be included in arriving at 
costs; provided such adjustments relate to the period of contract 
performance.
    (d) When materials are purchased specifically for and are 
identifiable solely with performance under a contract, the actual 
purchase cost of those materials should be charged to the contract. If 
material is issued from stores,

[[Page 630]]

any generally recognized method of pricing such material is acceptable 
if that method is consistently applied and the results are equitable.
    (e) Allowance for all materials, supplies and services that are sold 
or transferred between any divisions, subdivisions, subsidiaries, or 
affiliates of the contractor under a common control shall be on the 
basis of cost incurred in accordance with this subpart. However, 
allowance may be at price when--
    (1) It is the established practice of the transferring organization 
to price interorganizational transfers at other than cost for commercial 
work of the contractor or any division, subsidiary or affiliate of the 
contractor under a common control; and
    (2) The item being transferred qualifies for an exception under 
15.403-1(b) and the contracting officer has not determined the price to 
be unreasonable.
    (f) When a commercial item under paragraph (e) of this subsection is 
transferred at a price based on a catalog or market price, the 
contractor--
    (1) Should adjust the price to reflect the quantities being 
acquired; and
    (2) May adjust the price to reflect the actual cost of any 
modifications necessary because of contract requirements.

[69 FR 34243, June 18, 2004]