Contractor Cost Accounting
Problem Set Two
1.
Crabtree Firearms has a time and materials contract to build 5,000 guidance
computers for the tomahawk missile. The company has two indirect cost rates:
(1) an overhead rate of 150% that uses as its base direct labor dollars, and (2) a
materials handling rate of 27% that uses as its base direct materials. Consistent
with most time and materials
contracts, the contract allows
a fee or profit of 6% on total
loaded labor, no fee on
materials. Per unit costs to
build the computers were: $8,500 for direct labor and $12,800 for materials. How
much should they bill for the 5,000 guidance computers? What is the per unit
cost?
2.
Denver Avionics was founded in 1996 to manufacture avionics equipment for the
F-16 fighter. When the company was formed controller elected to have three
indirect cost rates: (1) an overhead rate that uses as its base direct labor dollars,
(2) a materials handling rate that uses as its base direct materials costs, and (3) a
G&A rate that uses as its base total direct and indirect costs excluding G&A costs.
Estimated direct and indirect costs for the first year were:
Estimated Direct Labor
Estimated Direct Materials
Estimated Overhead Costs
Estimated Material Handling Cost
Estimated G&A Costs
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$5,800,000
$4,200,000
$2,581,000
$882,000
$3,365,750
Calculate rates.
Prepare a pro-forma income statement assuming all contracts were bid at
13%.
Assume the company’s first bid was on a contract with estimated direct
labor of $600,000, estimated direct materials of $700,000, and that the
company bid a 13% fee or profit on total direct and indirect costs. What
should the bid price have been?
Assume that at the end of the year the actual overhead rate for the year
was 44%, the actual materials handling rate was 22%, and the actual G&A
rate was 27%. Also assume that actual direct labor costs were $5,700,000,
and actual direct materials costs were $4,000,000. All contracts were cost
plus percentage fee contracts. Under the terms of this contract actual
direct costs, however, were to be loaded with the company’s forward
pricing rates for the purpose of billing (versus the actual rates). Prepare a
financial statement for the year.
3.
Brighton Software has negotiated a cost plus incentive fee contract with the
Army to design the software for a Tank simulator. The data calls for a $250,000
profit if total costs are $3,000,000 or less, linearly decreasing profits to a total cost
of $4,500,000. At $4,500,000 or more total
costs, the profit would be $75,000. How
much will the company make if total costs are
$4,100,000. You may the least squares
method to solve the equation if you wish.
4.
Airlectro Inc. has just received a firm price—successive target contract from
the Army to build to a missile launching system. A firm fixed price for the first
tracking unit of $2,000,000 has been established. Successive targets of
$1,700,000 have been established for the next three systems established. The
share ratio is 50/50. The company successfully delivered its first system.

Assume that the company’s controller has analyzed the cost and has determined
that future systems can be delivered for a price of $1,900,000. What amount will
the company be paid for each of the next three units?
5.
In January of 1996 Roswell Construction received a from the Army to build an
enlisted personnel housing complex on an Army Base being constructed on a
small island in the North Atlantic. Because of uncertainties over the cost of
transporting building materials, and
the cost of local labor, the contract
was awarded as a cost contract.
The company has three indirect cost
rates: (1) An overhead rate of 53%
that uses as it’s base direct labor
dollars, (2) a materials handling rate
of 19% that uses as its base direct material costs, and (3) a G&A rate of 18% that
uses as its base total direct and indirect costs excluding G&A indirect costs. The
contract is now completed. Actual direct costs on the project were Direct Labor
$10,800,000 and Direct Materials $23,200,000. How much should they bill the
Army for the new housing complex?
7.
Triangle Park Research Institute has a cost sharing contract with the CIA to
conduct a study that might lead to the development of a new computerized
microwave communication system. Triangle Park will retain rights to the
proprietary development and for that reason agreed to a cost sharing contract. The
contract will pay 50% of total contract costs. The company has three indirect cost
rates: (1) An overhead rate of 60% that uses as it’s base direct labor dollars, (2) a
materials handling rate of 20% that uses as its base direct material costs, and (3) a
G&A rate of 30% that uses as its base total direct and indirect costs excluding
G&A indirect costs. The contract is now completed and the final report has been
delivered to the CIA. Actual direct costs on the project were Direct Labor
$$800,000 and Direct Materials $100,000. How much should they bill the CIA
for the study?
8.
Rigby Engineering has received a labor hour contract for Electrical Engineers.
The company has an overhead rate of 42% that uses as its base direct labor
dollars, and a G&A rate of 28% that uses as its base total direct and indirect costs
excluding G&A. The company has negotiated a 18% fee on total loaded costs.
Electrical Engineers earn $40 per hour. What is the loaded hourly rate Rigby
should bill?
9.
In January 1996 Mason & Johnson Engineering bid a fixed price contract to
design a new propulsion system for the MIRV missile. The contract only
involved labor hours. Direct labor costs included in the bid were
$2,100,000. The company has one indirect cost rate which is
called Overhead. Overhead is applied on the basis of direct labor
dollars. Johnson’s overhead rate is 145%. A fee or profit of 10%
was bid on total contract costs (direct plus indirect).
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10.
What was the fixed price bid?
At the end of the year the controller determined that the
actual overhead rate was the same as the estimated
overhead rate. The company spent $2,000,000 of direct
labor on the contract. What was the actual total profit on
this contract? How does this compare to the original
estimated profit?
In June 1995 Jamison Construction bid on a fixed price—firm
target contract for the construction of an Officer’s Club at Hill Air Force Base
which they were subsequently awarded. Information relating to this contract is
shown below:
Target loaded cost*
Target profit
Target price
Price ceiling
Sharing arrangement
$12,000,000
$950,000
$12,950,000
$14,375,000
60/40
* Under the terms of the contract costs are to be loaded with the company’s
forward pricing rates.
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
Assume actual loaded costs are $11,500,000. What will be the company
be paid by the government for it’s work on this contract?
Assume actual loaded costs are $15,000,000. What will be the company
be paid by the government for it’s work on this contract?
Assume actual loaded costs are $13,100,100. What will be the company
be paid by the government for it’s work on this contract?
11.
Ogden Construction builds homes. Last year they won the bid to build a new
home for the Commander of Hill AFB. The contract was a firm fixed price
contract.
Direct labor
Direct materials
Overhead Rate
Materials Handling Rate
G&A Rate
Fee
$144,000
119,200
20.83%
0%
14.32%
9.82%
In preparing for the bid, the contractor estimated the
costs of the following milestones:
Milestone
Dir Labor
Dir Mater
Dig foundation #1
$4,000
$200
Pour foundation #2
$9,000
$5,000
Flooring and framing #3
$12,000
$29,000
Electrical #4
$15,000
$16,000
Plumbing #5
$26,000
$12,000
Drywall & plastering #6
$19,000
$8,000
Painting #7
$10,000
$6,000
Roofing #8
$15,000
$16,000
Exterior brick & siding #9
$13,000
$14,000
Driveways and walks #10
$6,000
$5,000
$15,000
$8,000
Heating/air conditioning #11
In June the construction supervisor provided the following table of actual costs incurred
to-date on the contract, and the percentage of completion of each cost type in each
milestone.
Milestone
Dir Labor
Dir Mater
Dig foundation
$4,200
100%
$300
100%
Pour foundation
$8,500
100%
$6,100
100%
Flooring and framing
$9,900
95%
$25,000
100%
Electrical
$7,000
30%
$16,100
100%
Plumbing
$12,000
60%
$10,000
80%
Drywall & plastering
$6,500
33%
$11,000
100%
Painting
$1,000
13%
$3,500
45%
Roofing
$100
1%
$4,000
30%
$3,000
33%
$12,500
80%
$100
3%
$2,000
20%
$3,600
22%
$10,000
95%
Exterior brick & siding
Driveways and walks
Heating/air conditioning
Prepare a job cost report by task showing budget, amount spent project-to-date, current
estimated total costs of construction, and total estimated overrun underrun on the project.
Use spreadsheet software.
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