Cost Accounting Standards

Accounting 6310Richard McDermott, Ph.D.

History

• The CASB was established as an agency of Congress in 1968, dissolved in 1980, reinstated in 1988

• Authorized to develop cost accounting standards

• The CASB has issued 19 costing standards that have the full effect of law

Objectives

• Uniformity and consistency in cost accounting

• For defense contractors• As a condition of contracting

Cas is concerned with three areas in cost accounting:

• Measurement of cost• Assignment of cost to cost

accounting periods• Allocation of costs to cost

objectives

CAS applies to:

• Negotiated non-exempt contracts• Of less than $50 million and more

than $500,000 • Awarded to a business unit that

received less than $50 Million in CAS covered awards during the proceeding accounting period.

Contracts exempt from CAS requirements• Sealed bid contracts• Negotiated contracts not in excess of

$500,000• Contracts with small businesses• Firm fixed-price contracts

– for the acquisition of commercial items, or– awarded on the basis of competitive

bidding

Contractor Disclosure Statement• Submitted by contractor• Discloses contractors day-to-day

accounting practices• Used as a means to measure the

consistency and compliance to CAS• Audited by DCAA

CAS and cost principles are not one and the same . . .• CAS addresses cost accounting on

government contracts. • The cost principles address cost

allowability.• Cost allowability is a procurement

matter and is a function of law regulation or contract

• Costs may be allocable but unallowable

Summary of CAS for Defense Contractors

CAS 401

• Consistency in Estimating, Accumulating, and Reporting Costs– Indirect cost pool practices must be

consistent as to:•Classification as direct or indirect

cost•Indirect costs pools •Methods of allocation to contract

CAS 402

• Consistency in Allocating Costs for the Same Purpose– Requires that each type of cost be

allocated• only once, and • on only one basis, • to any contract

CAS 402 (continued)

• No final Cost objective shall have any cost allocated as an indirect cost, if other costs incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective.

CAS 403

• Allocation of Home Office Expenses to Segments– Home office expenses shall be

allocated on the basis of the beneficial or casual relationship between supporting and receiving activities

CAS 404

• Capitalization of Tangible Assets– Contractor must establish reasonable

and consistently followed policies– The policies shall designate economic

and physical characteristics for capitalization of tangible assets

CAS 405

• Accounting for Unallowable Costs– Costs mutually agreed to be

unallowable shall be identified and excluded from billing to the government

CAS 406

• Cost Accounting Period– Contractor shall use its fiscal year as

the cost accounting period

CAS 407

• Use of Standard Costs for Direct Material and Direct Labor– Standard costs may be used for

estimating, accumulating, and reporting of direct material and direct labor when the following conditions are met:

Standard Costing Conditions• Standard costs are entered into the

books of the account• Standard costs and related variances

are appropriately accounted for at the level of the production unit

• Practices regarding the setting of standards and disposition of variances are stated in writing and consistently followed

CAS 408

• Accounting for Costs of Compensated Personal Absence– The costs of compensated personal

absence shall be assigned to the cost accounting period in in which the entitlement was earned

– The cost of compensated personal absence for an entire cost accounting period shall be allocated pro-rata among the final cost objectives of that period

CAS 409

• Depreciation of Tangible Capital Assets– Depreciable costs shall be assigned to

cost accounting periods– Annual depreciation costs shall be

allocated to cost objectives

CAS 410

• Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives– Business unit G&A expenses shall be

grouped into a separate indirect cost pool which shall be allocated only to final cost objectives

CAS 411

• Accounting for Acquisition Costs of Material– Contractor shall have, and

consistently apply, written accounting policies for accumulating and allocating costs of material• Allocate direct material as direct cost• Allocate indirect material as indirect costs

CAS 412

• Compensation and Measurement of Pension Costs– For defined contribution plans, the

cost is the net contribution required– For measurement of defined benefit

plan cost, an actuarial cost method is required

CAS 413

• Adjustment and Allocation of Pension Costs– Actuarial gains and losses shall be

calculated annually and shall be assigned to the cost accounting period for which the valuation is made

– Pension costs shall be allocated to each segment having participants in the pension plan

CAS 414

• Cost of Money As an Element of the Cost of Facilities Capital– the Cost of money shall be based on

interest rates determined by the secretary of the treasury

– The cost of capital committed to facilities shall be separately computed for each contract

CAS 415

• Accounting for the Cost of Deferred Compensation– The cost of deferred compensation

shall be assigned to the cost accounting period in which the contractor incurs an obligation to compensate the employee

CAS 416

• Accounting for Insurance Costs– The amount of insurance costs to be

assigned to a cost accounting period is the projected average loss for the period plus insurance administration expenses

– Insurance premiums shall be pro- rated over the periods covered by the policy

– The allocation of insurance costs shall be based on causal relationships

CAS 417

• Cost of Money As an Element of the Cost of Capital Assets Under Construction– The above costs shall be capitalized

as a part of the capital asset being constructed

CAS 418

• Allocation of Direct and Indirect Costs– Written and consistently followed

accounting policies are required– Indirect cost shall be accumulated in

homogeneous cost pools– Pooled cost shall be allocated using

causalof relationships

CAS 419

• No longer exists

RIPCAS 419

Xxxxxx xxxxxXxxxxxx

CAS 420

• Accounting for Independent Research and Development and Bid and Proposal Costs– Costs shall be identified in indirect cost

pools– Costs cannot carry G&A– Costs shall be allocated to segments based

on a causal relationship– Costs incurred in one accounting period shall

not be assigned to any other period

The End!