CAS 402- Consistency in Allocating Costs Incurred for the Same Purpose.
Purpose/Fundamental Requirement: Each type of cost shall be allocated only once and on only one basis to any contract or other final cost objective. The standard is necessary to prevent double counting, which occurs when one or more cost items (incurred for the same purpose and in like circumstances) are charged inconsistently (some as a direct cost and others as an indirect cost). This requirement applies to both estimated and actual costs incurred. The standard provides a materiality exception, stating that any direct cost of a minor dollar amount may be treated as an indirect cost where the accounting treatment for such cost is consistently applied to all final cost objectives, provided that it produces substantially the same results as if the cost had been treated as a direct cost.
Overall View: Why does this standard exist? Picture This
The contractor‘s practice is to charge all travel costs direct when the travel relates to Contract A. Travel costs on Contract A are $400. All travel costs related to Contracts B and C are charged indirect and are $600. Travel costs are the only indirect costs of the company. The contractor allocated its indirect costs as follows:
|
A |
B |
C |
Total |
|
| Direct Labor Costs |
$3,000 |
$1,000 |
$2,000 |
$6,000 |
| Direct Travel Costs |
400 |
0 |
0 |
400 |
| Overhead rate $600/6,000 = 10% | ||||
| Overhead applied |
300 |
100 |
200 |
600 |
| Total Contract Cost |
$3,700 |
$1,100 |
$2,200 |
$7,000 |
In this instance, Contract A paid travel costs both directly and indirectly. As a result, Contract A paid travel costs related to contracts B and C. CAS 402 prevents against this double counting of travel costs on Contract A.
Example of a Compliant Practice:
A contractor has a computer support center that supports two facilities, Facility A and Facility B. When employees of the computer support center perform work for Facility A, they charge their time direct to the contract being performed at Facility A. When employees of the computer support center perform work for Facility B, they charge their time direct to the contract being performed at Facility B. This practice is in compliance with CAS 402.
Example of a Noncompliant Practice: A contractor has a computer support center that supports two facilities, Facility X and Facility Y. When employees of the computer support center perform work for Facility X, they charge their time direct to the contract being performed at Facility X. When employees of the computer support center perform work for Facility Y, they charge their time to an indirect cost pool that is allocated to contracts performed in both Facility X and Facility Y. This practice is in noncompliance with CAS 402, since computer service costs incurred for the same purpose in like circumstances are being charged inconsistently.
Example of a Noncompliant Practice: The contractor’s Disclosure Statement states that all nuts, bolts, and screws are charged to an indirect expense pool. During contract performance, the contractor charges the cost of nuts, bolts, and screws directly to Contract X. Costs of nuts, bolts, and screws on all other contracts are being charged to an indirect expense pool. The practice of charging nuts, bolts, and screws directly to Contract X is in noncompliance with CAS 402. It is important to note that the contractor is also in noncompliance with its disclosed practices, since the actual practices used are not consistent with those specified in the Disclosure Statement.
Example of a Noncompliant Practice: A contractor that is not required to submit a Disclosure Statement has an established accounting practice, as of the time of the contract proposal submission for Contract Y, to charge all travel costs of program managers indirect. When submitting a proposal for Contract Y, the contractor estimates travel costs of program managers as a direct cost. The estimated costs of the contract proposal are in noncompliance with CAS 402, since the established practice at the time of proposal submission was to charge all travel costs of program managers as indirect costs. Note that this is also in noncompliance with CAS 401, since the costs were not proposed in a manner consistent with the contractor’s established accounting practice.
Example of a Noncompliant Practice: A contractor has three contracts, with each contract performed at a separate site. Each site has its own mail function, including its own postage machines. However, for purposes of cost estimating and accumulation, the contractor accumulates all postage costs in the G&A pool. The total postage costs for the year are minor in amount, and charging these costs direct to each site would produce substantially the same results that are produced when the costs are included in the G&A pool. In this case, the contractor is in compliance with the requirements of CAS 402, because the costs are consistently charged indirect and the results are substantially the same as if the cost had all been treated as direct costs.