Let’s explore CAS 410—Allocation of Business Unit General and Administrative (G&A) Expenses to Final Cost Objectives. Select Start to begin!
You will need to understand the following terms/definitions. Take a few moments to familiarize yourself with them and commit them to memory; you will encounter them in this lesson. You will have a chance to test your memory during the Terminology Game and the Crossword Puzzle.
Allocate
To assign an item of cost, or a group of items of cost, to one or more cost objectives. This term includes both direct assignments of cost and the reassignment of a share from an indirect cost pool.
Business unit
Any segment of an organization, or an entire business organization which is not divided into segments.
Cost input
The cost, except G&A expenses, which for contract costing purposes is allocable to the production of goods and services during a cost accounting period.
Cost objective
A function, organizational subdivision, contract or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc.
Final cost objective
A cost objective which has allocated to it both direct and indirect costs, and, in the contractor's accumulation systems, is one of the final accumulation points.
General and administrative expense
Any management, financial, and other expense which is incurred by or allocated to a business unit and which is for the general management and administration of the business unit as a whole. G&A expense does not include those management expenses whose beneficial or causal relationship to cost objectives can be more directly measured by a base other than a cost input base representing the total activity of a business unit during a cost accounting period.
Segment
One of two or more divisions, product departments, plants, or other subdivisions of an organization reporting directly to a home office, usually identified with responsibility for profit and/or producing a product or service. The term includes Government-owned contractor-operated (GOCO) facilities, and
joint ventures and subsidiaries (domestic and foreign) in which the organization has a majority ownership. The term also includes those joint ventures and subsidiaries (domestic and foreign) in which the organization has less than a majority of ownership, but over which it exercises control.
Select the tabs to learn more
Previously you learned how to navigate to the e-CFR website, the source to refer to for the current Cost Accounting Standards. You can go to it anytime you wish. Refer to the job aid under Lesson Resources if you need a refresher on how to access it.
For the purposes of this course however, we have provided an annotated version of CAS 410, to assist you in navigating the CAS and to help you focus on the key take away points in each standard. After reading the highlighted portions of the CAS, the lesson will walk you through several exercises to reinforce your learning.
Select the icon to read the annotated version of CAS 410.
After you have finished reading, we’ll review key points throughout the rest of the topic.
Oliver begins: "CAS 410 provides criteria for allocating general and administrative expenses to the business units' final cost objectives, such as their contracts, based on their beneficial or causal relationship to the cost objectives." As Oliver is speaking, CAS 403 and a bracket appear, encompassing the two top rows of the diagram: the Home Office and Segments. And then, CAS 410 and a bracket appear, encompassing the rows containing the segments and business units on the diagram, and CAS 410 is circled.
The diagram remains on-screen, but CAS 403, CAS 410, and the brackets disappear and are replaced with the words G&A Expenses as Oliver says: "To understand this topic, you need to know what general and administrative expenses are. G&A expenses are incurred for the general management and administration of the business unit as a whole." At this point, Business Units 1, 2, and 3 are circled in the diagram.
An image of currency and coins appears to be flowing from the words G&A Expenses to Business Units 1, 2, and 3, as Oliver goes on to say: "Examples of G&A expenses include the salaries and other costs of the executive staff at the corporate headquarters, and staff services, such as legal, financial, and public relations that are incurred for the business unit as a whole." As each key word is spoken, it is reinforced by a small, representative icon: executive staff at corporate headquarters, legal, financial, and public relations, and then, the three business units are circled again for emphasis.
At this point, everything disappears from the whiteboard, and the words G&A Expenses are written on the whiteboard as the numerator above the words Cost Input Base Representative of Total Activity of Business Unit as the denominator as Oliver says: "G&A expenses are allocated to final cost objectives using a cost input base the best represents the total activity of the business unit."
The fraction moves up to the top of the whiteboard, beside Oliver, as he goes on to say: "We need to distinguish between G&A expenses and overhead costs. They are both indirect costs. Indirect costs that we call G&A apply to the company as a whole, while costs that relate to a specific part of function of a company are considered to be overhead."
Oliver goes on to say: "Examples of what we call overhead include indirect costs associated with cost centers such as manufacturing overhead, material overhead, and engineering overhead." At this point, the words Manufacturing Overhead are written on the whiteboard.
Oliver continues: "Overhead costs are allocated to the contracts they support using a base that results in a more equitable allocation than the G&A base. For example, manufacturing overhead could be allocated to the supported contracts using a base such as manufacturing cost input or manufacturing direct labor." As he is explaining this, the words Manufacturing Overhead become the numerator over manufacturing direct labor as the denominator of a fraction on the whiteboard.
Oliver emphasizes: "The point is that overhead costs need to be excluded from the G&A expense pool in order to avoid double counting." As he says overhead costs, Manufacturing Overhead is circled on the whiteboard. As he says G&A expense pool, G&A Expenses are circled on the whiteboard. With those two key terms circled on the whiteboard (G&A Expenses and Manufacturing Overhead), Oliver continues: "As you work through this topic, you'll see why this distinction between G&A expenses and overhead costs is essential for you to assess contractors' compliance with Cost Accounting Standards."
The original diagram showing the relationship between the home office, segments, and business units reappears on the whiteboard with CAS 410 and a bracket encompassing the segments and business units, as Oliver says: "One more thing, in addition to providing the rules for allocating G&A expenses, CAS 410 picks up where CAS 403 left off." At this point, CAS 403 and a bracket are added to top portion of diagram, encompassing the home office and segments. Oliver continues: "In the previous topic, you learned that CAS 403 addresses allocating home office expenses from the home office to business segments." As Oliver says this, yellow borders are added to the home office at the top of the diagram, the connecting lines, and Segments 1, 2, and 3 beneath the Home Office. (Segment 3's label includes Intermediate Home Office).
As Oliver concludes with: "CAS 410 provides criteria for allocating home office expenses from the segments to the segments' cost objectives," yellow borders are added to the connecting lines branching down from the segments to the business units beneath the segments.
Overview
Before we examine the specific CAS 410 rules, this example has been included to provide an overview of how the G&A rate is calculated and then applied.
In our example, the G&A expenses for Business Unit 1 amounted to $3,000,000 during the accounting period.
Overview
Before we examine the specific CAS 410 rules, this example has been included to provide an overview of how the G&A rate is calculated and then applied.
In our example, the G&A expenses for Business Unit 1 amounted to $3,000,000 during the accounting period.
Three Bases
To allocate the G&A expenses among the various contracts, we need to calculate the G&A rate. CAS 410 lists three allocation bases and requires that one of these three bases is used when allocating G&A expenses. Contractors should choose the base that comes closest to representing the total activity of the business unit.
We’ll take a much closer look at all three of these bases later in this topic, so for now, we’ll briefly introduce each base. The three bases in CAS 410 for allocating G&A expenses are:
TCI Base
In our example, for Business Unit 1, the TCI base most closely represents the total activity of the business unit. So, to calculate the TCI base, we need to total all the other allocable costs that Business Unit 1 incurred during the same period (other than G&A expenses). This includes, for example, direct material, material overhead, direct labor, labor overhead, subcontract costs, and other direct costs. For Business Unit 1, the total costs, other than G&A, equal $60,000,000.
Now, to get the G&A rate, we divide the $3,000,000 G&A expenses by the total cost input base of $60,000,000 to get .05 or 5%.
Then, we just apply the 5% G&A rate to those same costs for each contract to figure out how much G&A expense to add to each contract’s cost. This is illustrated on the next tab.
G&A Expense?
Recall that on the preceding tab, we determined that Business Unit 1’s G&A rate is 5%.
5% G&A rate x $15,000,000 = $750,000; therefore, $750,000 would be allocated to Contract A for G&A expenses during the accounting period.
Select the Q/A question when you are ready to check your answer.
Value-Added
Recall that earlier in this example we said the TCI base included direct material, material overhead, direct labor, labor overhead, subcontract costs, and other direct costs. Now, what if, due to the nature of some of the contracts, including direct material and subcontracting costs would distort the allocations and result in unfair allocations of G&A costs to the contracts?
In that case, in accordance with CAS 410, we would use the value-added base. With the value-added base, two costs are excluded: direct material and subcontracting. Then, once the value-added base is calculated, it is used to calculate the G&A rate. In this case, when using the value-added G&A rate, it will be applied to those same costs in each contract. This means direct material and subcontracting costs will be excluded when the value-added G&A rate is applied to calculate the allocation.
Single-Element
For some business units, the use of a single-element base, such as direct labor, may result in the most equitable allocation of G&A costs. In that case, whatever the single element is that is used to calculate the G&A rate, the G&A rate is applied to that same single element (direct labor for example) in each contract to figure out the amount of G&A costs to allocate to each contract.
Select the tabs to learn more
Let’s begin with three basic requirements related to the G&A expense pool.
Select each for more information.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor with $30,000,000 of revenues leases all its buildings except for one small facility. The contractor incurs approximately $2,000 per year of building maintenance costs for this facility. The contractor includes the $2,000 in the general and administrative (G&A) expense pool.
It may surprise you to learn that the G&A expense pool may be combined with other indirect expense pools for allocation to final cost objectives. This is provided both of the following criteria are met.
Select each for more information.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor whose business is 95% labor costs includes all indirect costs in a single pool that is allocated over a base of direct labor. The contractor has a separate accounting code in its records that distinguishes general and administrative (G&A) expense accounts from the other indirect expense accounts in the pool.
If a business unit performs G&A activities for one or more other segments in the company, that is allowed, provided the G&A expenses are allocated to the other segments based on the beneficial or causal relationship between the expenses incurred and all the segments that benefited from them or caused them.
[48 CFR 9904.410-50(a)]
The G&A expenses for activities performed for other segments must be removed from the G&A pool of the business unit that is performing them.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
Company A has three business units, Business Units X, Y, and Z. Business Unit X performs the payroll function for Business Units X, Y and Z. The cost of the payroll function totals $100,000. Company A allocates payroll costs on the basis of headcount. Business Unit X has 50% of the total headcount, Business Unit Y has 30%, and Business Unit Z has 20%.
Earlier you learned that CAS 410 includes criteria for allocating home office expenses from the segment to the segment’s cost objectives. Let’s take a look at some of those requirements now.
If a segment receives allocations from the home office for costs associated with providing line management of a particular segment or group of segments, these allocations must be included in the receiving segment’s G&A expense pool.
If a segment receives an allocation of residual home office expenses, that expense must also be included in the receiving segment’s G&A expense pool.
And any direct expenses for the management and administration of the receiving segment as a whole must also be included in the receiving segment’s G&A expense pool.
[48 CFR 9904.410-50(g)(1)]
Notice the recurring theme in the CAS 410 requirements related to allocating home office expenses to the segment’s G&A expense pool. In order to be included in the G&A expense pool, whether they are indirect or direct costs, the costs must have been incurred for management or administration of the receiving segment as a whole.
Check your knowledge by answering the following multiple select question.
Select all that apply and then select Submit.
Business Unit Q receives a home office cost allocation of $1,600,000. Of this, $1,500,000 is indirectly allocated, which includes $1,000,000 for line management of the business unit and $500,000 for residual expenses. The remaining $100,000 is a direct allocation for an internal audit of the business unit.
Requirement
You just discovered three types of home office cost allocations that, according to CAS 410, must be included in the receiving segment’s G&A expense pool. CAS 410 also specifies certain types of allocations that must be excluded from the G&A pool.
Separate allocations that are significant in amount and are received from the home office for centralized service functions, staff management of specific activities of segments, and central payments or accruals must be allocated to business unit final cost objectives on the basis of the beneficial or causal relationship between the expense and the cost objectives. [48 CFR 9904.410-50(g)(2)]
Requirement
You just discovered three types of home office cost allocations that, according to CAS 410, must be included in the receiving segment’s G&A expense pool. CAS 410 also specifies certain types of allocations that must be excluded from the G&A pool.
Separate allocations that are significant in amount and are received from the home office for centralized service functions, staff management of specific activities of segments, and central payments or accruals must be allocated to business unit final cost objectives on the basis of the beneficial or causal relationship between the expense and the cost objectives. [48 CFR 9904.410-50(g)(2)]
Explanation
The reason for this requirement is that if certain costs are included in the G&A expense pool and allocated using the G&A base, the result will be an inequitable allocation.
These costs need to be allocated using a base that reflects the beneficial or causal relationship between the expenses and the final cost objectives they are allocated to.
Examples
For example, centralized service functions, such as personnel administration, will be more fairly allocated to the final cost objectives using a base such as the number of personnel rather than the most widely used G&A base of total cost input.
The same is true of staff management allocations for specific activities. Manufacturing management costs, for example, will be more fairly allocated if, instead of using total cost input as the base, a base is used that is more closely related. Manufacturing cost input or manufacturing direct labor are two options that could be used to more equitably allocate manufacturing management costs to the final cost objectives.
Select the tabs to learn more
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
Business Unit Q receives an allocation of centralized service functions from the home office of $600,000. Of this, $200,000 is for payroll processing and $400,000 is for building management of the building where Business Unit Q performs all its work. The contractor includes the entire $600,000 in the general and administrative (G&A) expense pool and allocates it over a base of total cost input.
What if the contractor has a business unit that has several Government contracts it is fulfilling, and this same business unit also does the payroll for all the divisions within the company? In this case, this business unit is performing as an operating segment because it has final cost objectives, i.e., contracts, that it is fulfilling. And, it is also performing a home office function, namely payroll. CAS 410 dictates that when a business unit performs both home office and operating segment functions, the home office costs must be segregated from the operating segment costs. The home office costs must be allocated to each of the receiving segments in accordance with CAS 403. The G&A expenses incurred for the Government contracts must be allocated to each final cost objective in accordance with CAS 410.
[48 CFR 9904.410-50(h)]
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
Business Unit Q performs building maintenance functions for all company buildings. Business Unit Q also performs contract work. During the fiscal year, Business Unit Q incurred building maintenance costs of $5,000,000. It also incurred general and administrative (G&A) expenses associated with the contract work of $2,000,000. Business Unit Q accumulates all of these costs in the G&A pool for allocation to final cost objectives.
Three Bases
Now that we’ve examined the G&A pool, let’s focus on the G&A allocation bases. Recall that CAS 410 specifies that one of three allocation bases must be used:
The base that is chosen depends on the circumstances of each business unit. Which base will result in the most equitable allocation of G&A expenses to the final cost objectives—the contracts?
Three Bases
Now that we’ve examined the G&A pool, let’s focus on the G&A allocation bases. Recall that CAS 410 specifies that one of three allocation bases must be used:
The base that is chosen depends on the circumstances of each business unit. Which base will result in the most equitable allocation of G&A expenses to the final cost objectives—the contracts?
TCI Base
CAS 410 says: “A total cost input base is generally acceptable as an appropriate measure of the total activity of a business unit.” In other words, TCI often results in fairly allocating the G&A expenses among the contracts.
In the example that follows, you will see how the TCI base is calculated, and then applied in Business Unit A.
Example
Business Unit A’s G&A expenses totaled $140,000. This table shows all the costs that are included in Business Unit A’s TCI base.
Business Unit A’s Costs in TCI Base:
| Costs | Amount |
|---|---|
| Direct Material | $1,000,000 |
| Material Overhead | $100,000 |
| Direct Labor | $1,400,000 |
| Labor Overhead | $100,000 |
| Other Direct Costs (ODCs) | $200,000 |
| TCI Base for Business Unit A | $2,800,000 |
Example (cont.)
Recall that Business Unit A’s G&A expenses amounted to $140,000 and their TCI base totaled $2,800,000 (as shown on the preceding tab). The next step is to calculate the G&A rate, using the G&A expenses of $140,000 as the numerator and the TCI base of $2,800,000 as the denominator.
$140,000 G&A Expenses / $2,800,000 TCI Base = .05 or 5% G&A Rate
Now that they’ve calculated the G&A rate, the contractor will apply the 5% G&A rate to those same costs in each contract: direct material, material overhead, direct labor, labor overhead, and ODCs to determine the amount of G&A expenses to be allocated to each contract.
5% x Contract’s TCI Costs = Contract’s G&A Expenses Allocation
Select the tabs to learn more
Value-Added
Now let’s see what the value-added base is and when it should be used to allocate G&A expenses to the contracts.
CAS 410 says that if the inclusion of material and subcontract costs would significantly distort the allocation of G&A expenses in relation to the benefits received and when costs other than direct labor are significant, then a value-added base may be used to allocate G&A expenses.
The value-added base excludes direct material and subcontract costs.
Value-Added
Now let’s see what the value-added base is and when it should be used to allocate G&A expenses to the contracts.
CAS 410 says that if the inclusion of material and subcontract costs would significantly distort the allocation of G&A expenses in relation to the benefits received and when costs other than direct labor are significant, then a value-added base may be used to allocate G&A expenses.
The value-added base excludes direct material and subcontract costs.
Example
Business Unit B’s G&A expenses totaled $702,000. Here we see Business Unit B’s value-added costs. Notice that direct material and subcontract costs have been excluded.
Business Unit B’s Costs in Value-Added Base:
| Costs | Amount |
|---|---|
| Material Overhead | $300,000 |
| Direct Labor | $7,000,000 |
| Labor Overhead | $250,000 |
| Other Direct Costs (ODCs) | $250,000 |
| TCI Base for Business Unit A | $7,800,000 |
Example (pt.2)
At this point, are you wondering why the value-added base is best for Business Unit B? In Business Unit B, 99% of the material costs are incurred by only 2% of the contracts.
This means that for Business Unit B, if direct material costs are included, 2% of the contracts would receive a disproportionately larger share of G&A expenses, while all the other contracts would receive a smaller share than they should.
Therefore, for Business Unit B, the value-added base is justified. Direct material costs and subcontract costs are excluded from the base.
Example (pt.3)
Recall that Business Unit B’s G&A expenses amounted to $702,000 and their value-added base totaled $7,800,000. The next step is to calculate the G&A rate, using the G&A expenses of $702,000 as the numerator and the value-added base of $7,800,000 as the denominator.
$702,000 G&A Expenses / $7,800,000 Value-Added Base = .09 or 9% G&A Rate
Now that they’ve calculated the G&A rate, the contractor will apply the 9% G&A rate to only those contract costs that are included in the value-added subtotal: material overhead, direct labor, labor overhead, and ODCs. The G&A rate is not applied to direct material costs or subcontract costs, to avoid distorting the allocations.
9% x Contract’s Value-Added Costs = Contract’s G&A Expenses Allocation
Select the tabs to learn more
Single-Element
So, that leaves only the single-element allocation base. CAS 410 says a single-element base may be used when it produces equitable results.
However, a single-element base is inappropriate where that element is an insignificant part of the total cost of some of the final cost objectives or where other measures of activity are also significant in relation to the total activity.
In other words, a single-element base may be used only when that cost input is a significant part of the total cost of all the contracts and all the other cost inputs are insignificant by comparison.
Single-Element
So, that leaves only the single-element allocation base. CAS 410 says a single-element base may be used when it produces equitable results.
However, a single-element base is inappropriate where that element is an insignificant part of the total cost of some of the final cost objectives or where other measures of activity are also significant in relation to the total activity.
In other words, a single-element base may be used only when that cost input is a significant part of the total cost of all the contracts and all the other cost inputs are insignificant by comparison.
Example
For this example, we’ll take a look at Business Unit C. Their G&A expenses totaled $975,000.
Business Unit C is completing several services contracts for the Government. While the contracts have some other cost elements, direct labor accounts for over 90% of the costs of each contract.
Business Unit C’s Costs
| Costs | Amount |
|---|---|
| Direct Material | $1,000 |
| Material Overhead | $100 |
| Direct Labor | $6,500,000 |
| Labor Overhead | $3,000 |
| Other Direct Costs (ODCs) | $2,000 |
Example (pt.2)
Because direct labor is such a significant cost element and the other costs are insignificant, by comparison, it would be compliant with CAS 410 for this contractor to use a single-element G&A allocation base—direct labor—for Business Unit C.
So, the contractor would divide the total G&A expenses of $975,000 by direct labor of $6,500,000.
$975,000 G&A Expenses / $6,500,000 Direct Labor Single-Element = 15% G&A Rate
Question
Business Unit C’s G&A rate is 15%.
If you said the 15% would be applied to each contract’s direct labor costs, give yourself the blue ribbon!
Select the Q/A question when you are ready to check your answer.
Select the tabs to learn more
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor’s cost input for Business Unit R is 35% labor costs and 65% other costs. This contractor proposes using a general and administrative (G&A) expense allocation base of direct labor for this business unit.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor’s cost input for Business Unit S is comprised of 60% direct labor, 10% indirect expenses other than general and administrative (G&A) costs, 10% material costs, 10% subcontract costs, and 10% other direct costs. When material and subcontract costs are plotted for all contracts, all the contracts fall within a statistical normal distribution. The contractor chooses a total cost input (TCI) base for this business unit.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor’s cost input for Business Unit T is comprised of 50% direct labor, 10% indirect expenses other than general and administrative (G&A) costs, 20% materials, 10% subcontract costs, and 10% other direct costs. An analysis of the material costs indicates that, of the 400 contracts, 99% of the material costs are incurred on 30 of those contracts. The contractor proposes using a value-added allocation base.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor uses the total cost input (TCI) base for allocating general and administrative (G&A) expenses. The contractor’s costs for the fiscal year amounted to:
| Costs | Amount |
|---|---|
| Direct Labor | $10,000,000 |
| Indirect Expenses Other than G&A | $5,000,000 |
| Materials and Subcontract Costs | $3,000,000 |
| Other Direct Costs (ODCs) | $2,000,000 |
| G&A Expenses | $1,000,000 |
Once the G&A rate is calculated, 5% in this case, you calculate the amount of general and administrative expenses to allocate to each contract, by multiplying the G&A rate by those same costs in each individual contract. So, with total cost input, we would take 5% of each contract’s direct labor, indirect expenses other than G&A, materials costs, subcontract costs, and other direct costs to figure out how much G&A expense to allocate to each contract.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor uses the value-added base for allocating general and administrative (G&A) expenses. The contractor’s costs for the fiscal year amounted to:
| Costs | Amount |
|---|---|
| Direct Labor | $10,000,000 |
| Indirect Expenses Other than G&A | $5,000,000 |
| Materials and Subcontract Costs | $3,000,000 |
| Other Direct Costs (ODCs) | $2,000,000 |
| G&A Expenses | $1,000,000 |
Once the G&A rate is calculated, 5.88% in this case, to calculate the amount of general and administrative expenses to allocate to each contract, you multiple the G&A rate by those same costs in each individual contract. So, with the value-added base, we would take 5.88% of each contract’s direct labor, indirect expenses other than G&A, and other direct costs to figure out how much G&A expense to allocate to each contract. Notice that we omit materials and subcontract costs with the value-added base.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
A contractor uses a single-element base for allocating general and administrative (G&A) expenses consisting of direct labor costs.
The contractor’s costs for the fiscal year amounted to:
| Costs | Amount |
|---|---|
| Direct Labor | $10,000,000 |
| Indirect Expenses Other than G&A | $500,000 |
| Materials and Subcontract Costs | $100,000 |
| Other Direct Costs (ODCs) | $300,000 |
| G&A Expenses | $1,000,000 |
Once the G&A rate is calculated, 10% in this case, to calculate the amount of general and administrative expenses to allocate to each contract, you multiple the G&A rate by that same single element in each contract. In this case, we would take 10% of each contract’s direct labor costs only to figure out how much G&A expense to allocate to each contract.
Allocations
When allocating G&A expenses, are contractors ever allowed to make special allocations? The answer is yes. CAS 410 requires special allocations if a particular final cost objective—contract—would otherwise receive a significantly larger or smaller share of the G&A expenses than is warranted.
CAS 410 includes these stipulations surrounding special allocations of G&A expenses:
Allocations
When allocating G&A expenses, are contractors ever allowed to make special allocations? The answer is yes. CAS 410 requires special allocations if a particular final cost objective—contract—would otherwise receive a significantly larger or smaller share of the G&A expenses than is warranted.
CAS 410 includes these stipulations surrounding special allocations of G&A expenses:
Requirement
Where a particular final cost objective receives significantly more or less benefit from G&A expense than is reflected by an allocation using a base required by CAS 410, a special allocation of G&A expense may be used for that cost objective.
When a special allocation is used, the amount of the special allocation must be excluded from the G&A expense pool and the cost input of the final cost objective receiving the special allocation must be removed from the G&A allocation base.
[48 CFR 9904.410-50(j)]
Example
For example, a contractor’s business unit has $1 billion in sales and 150 contracts. The contractor uses a TCI base that complies with CAS 410. In January of the fiscal year, the contractor is awarded Contract X, a $500 million contract. Contract X requires the contractor to use a lot of equipment, which will constitute about $350 million of the total contract cost. The contractor does not normally use this type of equipment for contract work and is planning on leasing it.
The Government and contractor enter into an advance agreement that provides for a special allocation of G&A costs to Contract X. In this case, making a special allocation of G&A costs to Contract X complies with CAS 410. Otherwise, Contract X would receive a disproportionately larger share of G&A expenses due to its equipment costs.
In addition, the amount of Contract X’s special allocation needs to be excluded from the G&A expense pool and Contract X’s cost input data needs to be excluded from the TCI base that is used to allocate G&A expenses to all the other contracts.
Select the tabs to learn more
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
Segment A had total costs of $100,000,000 during the fiscal year. These costs were incurred on 360 contracts. All but one of these contracts fell within the range of 55-65% labor costs, 35-45% material costs, and 0-5% subcontract costs.
Contract P had total costs of $5,000,000, consisting of 5% labor costs, 5% material costs, and 90% subcontract costs. The subcontract costs involve a pass-through, i.e., there is minimal work done by the contractor. The contractor proposes using a special allocation for Contract P’s general and administrative (G&A) expenses of $250,000 (5% of the costs).
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
The Government and the contractor agree that a special allocation is appropriate for Contract J. The Government and contractor agree that the special allocation for the fiscal year is $100,000. The contractor uses a total cost input (TCI) allocation base for general and administrative (G&A) expenses. During the fiscal year, the total G&A expense was $800,000. The TCI for all contracts, including Contract J, was $10,000,000. The TCI for Contract J was $3,000,000.
The following questions have been designed to reinforce key requirements of Cost Accounting Standard (CAS) 410 on allocating general and administrative (G&A) expenses to the final cost objectives of the business units.
Select the best answer and then select Submit.
Select the icon for the Knowledge Check details, and then rely on those details as you answer the following questions.
Check your knowledge by answering the following multiple choice question.
Select the best answer and then select Submit.
Select the icon for the Knowledge Check details, and then rely on those details as you answer the following questions.
That’s a lot of information! Let’s recap the main points before you proceed:
Select the SkyCampus menu option or select the next topic in the menu to continue.
