Cost Accounting Standards

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Cost Accounting Standards

• Accounting 6310
• Richard McDermott, Ph.D.

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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

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Objectives

• Uniformity and consistency in cost accounting
• For defense contractors
• As a condition of contracting

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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

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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.

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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

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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

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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

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Summary of CAS for Defense Contractors
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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

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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

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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.

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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

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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

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CAS 405

• Accounting for Unallowable Costs
• Costs mutually agreed to be unallowable shall be
  identified and excluded from billing to the
  government

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CAS 406

• Cost Accounting Period
• Contractor shall use its fiscal year as the cost
  accounting period

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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

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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

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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

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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

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CAS 410

• Allocation of Business Unit General and
  Administrative Expenses to Final Cost Objectives
• Business unit GA expenses shall be grouped into
  a separate indirect cost pool which shall be
  allocated only to final cost objectives

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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

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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

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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

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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

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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

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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

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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

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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

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CAS 419

• No longer exists

RIP CAS 419 Xxxxxx xxxxx Xxxxxxx
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CAS 420

• Accounting for Independent Research and
  Development and Bid and Proposal Costs
• Costs shall be identified in indirect cost pools
• Costs cannot carry GA
• 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

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The End!