Code of Federal Regulations Title 48. Federal Acquisition Regulations System 48.904.414, App. B Appendix B to 9904.414—Example—ABC Corporation

Current as of January 02, 2025 | Updated by Findlaw Staff

ABC Corporation has a home office that controls three operating divisions (Business Units A, B & C). The home office includes an administrative computer center whose costs are allocated separately to the business units. The separate allocation conforms to the requirements specified in the Cost Accounting Standard No. 403. Tables I through VI deal with home office expense allocations to business units.

The A Division is a business unit as defined by the CASB, and it uses one engineering and one manufacturing overhead pool to accumulate costs for charging overhead to final cost objectives. In addition, the indirect cost allocation process also uses two “service centers” with their own indirect cost pools: Occupancy and technical computer center.

The costs accumulated in the occupancy pool are allocated among manufacturing overhead, engineering overhead, and the technical computer center on the basis of floor space occupied. The costs accumulated in the technical computer center cost pool are allocated to users on the basis of a CPU hourly rate. Some of these allocations are made to engineering or manufacturing overhead while others are allocated direct to final cost objectives.

At the business unit level, all the indirect expense incurred is regarded either as an engineering or manufacturing expense. Thus the sole item that enters into the business unit G&A expense pool is the allocation received by the A Division from the home office.

Operating results for the A Division are given in Table VII. Facilities capital items for the division are given in Table IX.

The example is based on a single set of illustrative contract cost data given in Table VIII. Since two methods, the “regular” and the “alternative” method, are potentially available for computing cost of money on facilities capital items two sets of different results can be considered.

In addition, total cost input is used in the example as the allocation base for the G&A expense. Two variations of this example have been prepared to illustrate the impact of excluding or including cost of money from total cost input. Variation I, summarized in Table XIII, excludes cost of money from the cost input allocation base. Variation II, summarized in Tables XVII and XVIII, includes cost of money in the cost input allocation base.

Throughout the example, where appropriate, cross references have been made to the text of the relevant parts of the Standard.

Variation I—Total Cost Input Allocation Base Excludes Cost of Money
Table I—Net Book Value of Home Office Facilities Capital
	Dec. 31, 1974	Dec. 31, 1975
Administrative computer center facilities capital	$550,000	$450,000
Other home office facilities capital․․․․․․․․․․․․․	420,000	380,000
Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	970,000	830,000

The assets in the above table generate allowable depreciation or amortization, as explained in Instructions for Form CASB CMF (Basis). Thus they should be included in the asset base for cost of money computation.

Table II—Home Office Facilities Capital Annual Average Balances
Administrative computer center facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$500,000
Other home office facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	400,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	900,000

Table II—Home Office Facilities

Capital Annual Average Balances

Administrative computer center facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

$500,000

Other home office facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

400,000

Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

900,000

The above averages are based on data in Table I computed in accordance with the criteria in Instructions for Form CASB CMF (Recorded, Leased Property, Corporate).

$970,000+$830,000=$1,800,000¹2=$900,000

Table III—Home Office Depreciation and Amortization for 1975
Administrative computer center facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$100,000
Other home office facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	40,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	140,000

Table III—Home Office Depreciation

and Amortization for 1975

Administrative computer center facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

$100,000

Other home office facilities capital․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

40,000

Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

140,000

Table IV—Allocation of ABC Home Office Expenses to Divisions (Business Units)
		Allocation of business units
	Total expense	A	B	C
Administrative computer center․․․․․․․․․․․․․․․․․․․․	$1,800,000	$900,000	$900,000
Other home office․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	4,800,000	2,400,000	1,200,000	1,200,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	6,600,000	3,300,000	2,100,000	1,200,000

The above allocation is carried out in accordance with CAS 403. The expense allocated to individual business units above includes depreciation and amortization as reflected in Table V.

Table V—Depreciation and Amortization Component of ABC Home Office Expense
		Allocation of business units
	Total depreciation and amortization expense	A	B	C
Administrative computer center․․․․․․․․․․․․․․․․․․․․	$100,000	$50,000	$50,000
Other home office․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	40,000	20,000	10,000	10,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	140,000	70,000	60,000	10,000

Table VI—Allocation of Home Office Facilities Capital to Business Units

(a) Depreciation and amortization allocation in Table V converted to percentages.

		Allocation of business units (in percent)
	Total depreciation and amortization expense (in percent)	A	B	C
Administrative computer center․․․․․	100	50	50
Other home office․․․․․․․․․․․․․․․․․․	100	50	25	25

(b) Application of percentages in (a) to average net book values in Table II, in accordance with criteria in Instructions for Form CASB CMF (Recorded, Leased Property, Corporate).

		Allocation of business units
	Total net book value	A	B	C
Administrative computer center facilities capital․	$500,000	$250,000	$250,000
Other home office facilities capital․․․․․․․․․․․․․․	400,000	200,000	100,000	$100,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	900,000	450,000	350,000	100,000

Table VII—“A” Division 1975 Operating Results
	Total cost input and other work G.&A.	Fixed-price CAS-covered contract	Cost reim- bursement CAS-covered contracts	Commercial and other work
Direct material:
	Purchased parts․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$2,000,000	$100,000	$100,000	$1,800,000
	Subcontract items․․․․․․․․․․․․․․․․․․․․․․․․․․	21,530,000	11,750,000	7,205,000	2,575,000
		Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	23,530,000	11,850,000	7,305,000	4,375,000
Director labor and overhead:
	Engineering labor․․․․․․․․․․․․․․․․․․․․․․․․․․	2,000,000	1,500,000	500,000
	Engineering overhead (80 pct of direct engineering labor)	1,600,000	1,200,000	400,000
	Manufacturing labor․․․․․․․․․․․․․․․․․․․․․․․․	3,000,000	1,200,000	200,000	1,600,000
	Manufacturing overhead (200 pct of direct management labor)	6,000,000	2,400,000	400,000	3,200,000
Other direct charges:
	Technical computer center direct charge 2,280 h at $250/h	570,000	200,000	370,000
		Total cost input (excluding cost of money)	36,700,000	18,350,000	9,175,000	9,175,000
G. & A. (8.99 pct of cost input)․․․․․․․․․․․․․․․․․․	3,300,000	1,650,000	825,000	825,000
		Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	40,000,000	20,000,000	10,000,000	10,000,000

Table VIII—Cost Data for the Contract

Purchased parts․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$85,000
Subcontract items․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	990,000
Technical computer time 280 h at $250/h․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	70,000
Engineering labor․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	330,000
Engineering overhead at 80 pct․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	264,000
Manufacturing labor․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	1,210,000
Manufacturing overhead at 200 pct․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	2,420,000
	Total cost input (excluding cost of money)․․․․․․․․․․․․․․․․․․․․․․․․․․	5,369,000
G & A. at 8.99 pct․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	483,000
	Total cost input and G. & A. (excluding cost of money)․․․․․․․․․․․․․․	5,852,000

Table IX—Division A Facilities Capital

Average net book values are computed in accordance with Instructions to Form CASB CMF. Average figures only are given, the underlying beginning and ending balances for 1975 have not been reproduced.

Name of indirect cost pool the asset is associated with	Average net book value	Annual depreciation
Engineering overhead․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$320,000	$40,000
Manufacturing overhead․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	4,500,000	900,000
Technical computer center․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	450,000	90,000
Occupancy․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	3,000,000	200,000
Facilities capital recorded by division A (see Form CASB CMF instructions for description of recorded)	8,270,000	1,230,000
Allocated from home office, table VI․․․․․․․․․․․․․․․․․․․․․․․	450,000
	Total division A․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	8,720,000

Table X—Allocation of Undistributed Facilities Capital

(a) Occupancy Pool Assets. Total occupancy pool expenses are assumed to be $1,000,000 of which $200,000 is depreciation per Table IX. Allocation of the $3,000,000 net book value of assets per Table IX is performed on the basis of floor space utilization.

Indirect cost pool	Occupancy expense and depreciation allocation	Percent of total floor space utilized	Asset allocation
Engineering․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$200,000	20	$600,000
Manufacturing․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	750,000	75	2,250,000
Technical computer․․․․․․․․․․․․․․․․․․․․․․․․․․	50,000	5	150,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	1,000,000	100	3,000,000

(b) Technical Computer Center Assets. Total technical computer center expenses for the year are assumed to be $770,000 including $90,000 depreciation per Table IX and $50,000 charge from the occupancy pool per paragraph (a) of this table. A charging rate of $250 per hour is computed assuming a total of 3,080 chargeable CPU hours per annum. The net book value of assets amounting to $600,000 ($450,000 per Table IX plus the $150,000 allocated per (a) above) is allocated on the basis of CPU hours utilized.

Overhead pool or cost objective	Hours charged	Amount charged	Percent	Asset allocation
Fixed price contracts, table VII․․․․․․․․․․․․․․․․․․	800	$200,000	26	$156,000
Cost reimbursement contracts, table VII․․․․․․․․․․․	1,480	370,000	48	288,000
Engineering overhead pool․․․․․․․․․․․․․․․․․․․․․․․․․	800	200,000	26	156,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	3,080	770,000	100	600,000

Technical computer center․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

$450,000

Occupancy․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

3,000,000

Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․

3,450,000

Distribution per paragraph (a) or (b) of this table of balances to overhead pools that result in charges direct to final cost objectives.

Overhead pool	(a)	(b)	Total
Engineering․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$600,000	$156,000	$756,000
Manufacturing․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	2,250,000	․․․․․․․․․․․․․․․․․․	2,250,000
Technical computer center (direct charge to contracts)	․․․․․․․․․․․․․․․․․․	444,000	444,000
	Total․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	2,850,000	600,000	3,450,000

Table XIII—Summary of Cost of Money Computation on Facilities Capital
[Cost of money excluded from total cost input]
Allocation base	Allocated to contract, table VIII	Computation using regular facilities, capital cost of money factor, table XI	Amount	Computation using alternative facilities capital, cost of money factor, table XI	Amount
Engineering labor․․․․․․․․․․․․․․․․․․․․	$330,000	0.04304	$14,203	0.0128	$4,244
Manufacturing labor․․․․․․․․․․․․․․․․․․	1,210,000	.18	217,800	.12	145,200
Technical computer time․․․․․․․․․․․․․․	¹280	15.57895	4,362	․․․․․․․․․․․․	․․․․․․․․․․․․
Cost input․․․․․․․․․․․․․․․․․․․․․․․․․․․	$5,369,000	.00098	5,261	.00850	45,636
	Total cost of money on facilities capital	․․․․․․․․․․․․	․․․․․․․․․․․․	241,626	․․․․․․․․․․․․	195,060

¹ Hours.

Variation II—Total Cost Input Allocation Base Includes Cost of Money
Table XIV—Recomputation of “A” Division Total Cost Input To Reflect Inclusion of Cost of Money
(a)	Regular method:
	Total cost input per table VII․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	$36,700,000
	Cost of money applicable to facilities capital identified with overhead pools per subtotal in column 5, table XV	661,600
	Total cost input including cost of money․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	37,361,600
(b)	Alternative method:
	Total cost input per table VII․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	36,700,000
	Cost of money applicable to facilities capital identified with overhead pools per subtotal in column 5, table XVI	385,600
	Total cost input including cost of money․․․․․․․․․․․․․․․․․․․․․․․․․․․․․․	37,085,900

Table XVII—Summary of Cost of Money Computation on Facilities Capital
[Cost of money included in total cost input—regular method]
Allocation base	Allocated to contract, table VIII	Computation using regular facilities, capital cost of money factor, table XV	Amount
Engineering labor․․․․․․․․․․․․․․․․․․․․․․․․․․․	$330,000	0.04304	$14,203
Manufacturing labor․․․․․․․․․․․․․․․․․․․․․․․․․	1,210,000	.18	217,800
Technical computer time․․․․․․․․․․․․․․․․․․․․․	¹ 280	15.57895	4,362
Cost of money related to overheads․․․․․․․․․․	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․	236,365
Cost of money above to be included in cost input	236,365	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․
Cost input, table VIII․․․․․․․․․․․․․․․․․․․․․․	5,369,000	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․
Cost input including cost of money․․․․․․․․․․	5,605,365	.00096	5,381
	Total cost of money on facilities capital	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․	241,674

¹ Hours.

Table XVIII—Summary of Cost of Money Computation on Facilities Capital
[Cost of money included in total cost input—alternative method]
Allocation base	Allocated to contract, table VIII	Computation using alternative facilities, capital cost of money factor, table XVI	Amount
Engineering labor․․․․․․․․․․․․․․․․․․․․․․․․․․․	$330,000	0.0128	$4,224
Manufacturing labor․․․․․․․․․․․․․․․․․․․․․․․․․	1,210,000	.12	145,200
Cost of money related to overheads․․․․․․․․․․	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․	149,424
Cost of money above to be included in cost input	149,424	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․
Cost input, table VIII․․․․․․․․․․․․․․․․․․․․․․	5,369,000	․․․․․․․․․․․․․․․․․․	․․․․․․․․․․․․․․․․․․
Cost input including cost of money․․․․․․․․․․	5,518,424	.00841	46,410
	Total cost of money on facilities capital	5,518,424	․․․․․․․․․․․․․․․․․․	195,834

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Cite this article: FindLaw.com - Code of Federal Regulations Title 48. Federal Acquisition Regulations System 48.904.414, App. B Appendix B to 9904.414—Example—ABC Corporation - last updated January 02, 2025 | https://codes.findlaw.com/cfr/title-48-federal-acquisition-regulations-system/cfr-48-9904-414-app-b/

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