17 allocability far 31201 4 a cost is allocable to a

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17
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Allocability FAR 31.201-4 A cost is allocable to a government contract if it: Is incurred specifically for the contract; Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown. 18
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Contract Terms Specific types of cost are often addressed in a contract or request for proposal (RFP). However, the contract terms can only be more restrictive than the other factors that must be considered in determining cost allowability, not less. In other words, the contract terms cannot allow a cost that is: - Unreasonable; - Improperly measured, assigned and allocated to the contract - Unallowable in accordance with specific cost principles. 19
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Accounting for Contract Costs The accounting system must be able to accumulate and report the costs for each final cost objective; i.e. government contract. - Direct costs of the contract, plus - Allocation of applicable indirect costs, less - Unallowable Costs 20
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Accounting for Contract Costs DFARS 252.242-7006 (c) requirements: (5) Accumulation of costs under general ledger control (6) Reconciliation of subsidiary cost ledgers and cost objectives to general ledger (7) Approval and documentation of adjusting entries (11) Interim (at least monthly) determination of costs charged to a contract through routine posting of books of accounts 21
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Labor System DFARS 252.242-7006 (c) requirements: (9) A timekeeping system that identifies employees’ labor by intermediate or final cost objectives (10) A labor distribution system that charges direct and indirect labor to the appropriate cost objectives 22
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Timekeeping Labor should be charged to intermediate and final cost objectives based on a timekeeping document (paper or electronic timecards) completed and certified by the employees and approved by the employees’ supervisors. Employees should fill out timesheet on a daily basis and include all hours worked including uncompensated overtime. Labor cost distribution records should reconcilable to payroll records and labor distribution records should trace to and from the job cost ledger and general ledger accounts. 23
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Unallowable Costs DFARS 252.242- 7006 (c) (12) requires “Exclusion from costs charged to Government contracts of amounts which are not allowable in terms of Federal Acquisition Regulation (FAR) part 31, Contract Cost Principles and Procedures, and other contract provisions;” Therefore, contractors need written policies and procedures to identify and exclude unallowable costs. Unallowable costs need to be identified and excluded from any billings, claims, and proposals applicable to a Government contract. 24
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Costs by Contract Line Item DFARS 252.242-7006 (c)(13) requires “Identification of costs by contract line item and by units (as if each unit or line item were a separate contract), if required by the contract” Therefore, the accounting system needs be able to expand beyond a project number. Each job needs to be expanded to the requisite level of detail as determined by contract terms.
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