Government Contract Cost Accounting by Garrett Gregory A

Author:Garrett, Gregory A. [Garrett, Gregory A.]
Language: eng
Format: epub
Publisher: Wolters Kluwer Law and Business
Published: 2010-08-10T16:00:00+00:00

The 25% allocation rate means that for each $1 of direct labor cost incurred by this aircraft repair company to fix a specific airplane (i.e., final cost objective), the repair company will also allocate $0.25 of fringe benefit cost to that project.

Although direct labor (hours or dollars) is one of the most widely used allocation bases, several other allocation bases may also be used if they yield a more accurate and proportional indirect cost allocation. Other possible indirect cost allocation bases, some of which are prescribed in CAS 481-50(d)(2), include:

machine hours,

units of production,

material cost, and

headcount.

In general, if a significant portion of costs included in the cost pool relate to the supervision or management of direct labor or direct material costs, the base should be representative of the activity being supervised (i.e., direct labor hours or dollars are generally utilized unless a unique situation exists where another base is deemed more appropriate) per CAS 418-40(c)(1). However, per CAS 418-40(c), if the cost pool does not include a significant amount of supervision or management related costs, the costs included in the pool should be allocated based on:

(2) . . . the specific identifiability of resource consumption with cost objectives by means of one of the following allocation bases:

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