Cost Accounting Standards
Accounting 6310
Richard 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
RIP
CAS 419
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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 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!