CAS 410 - Allocation of BU G&A Expenses to Final Cost Objectives

Introduction

CAS 410 provides criteria for allocating general and administrative (G&A) expenses to final cost objectives e.g. contracts) and provides guidelines for the type of expenses that should be included in the G&A expense pool. It also requires that G&A expenses be allocated on a cost input base which represents the total activity of the company.

G&A expenses must be grouped in a separate indirect cost pool and allocated only to final cost objectives. For an expense to be classified as G&A, it must be incurred for managing and administering the whole business unit. Click on the link for a definition of General and Administrative (G&A) Expense.

Management expenses that can be more directly measured by a base other than cost input (ie. the cost do not benefit the corporation as a whole) should be removed from the G&A expense pool. For example, expenses such as program management, procurement, subcontract administration, G&A expenses incurred for another segment, etc., should not be identified as G&A expenses. Examples of G&A costs are the presidents salary, the accounting function, and sales and marketing.

The allocation base for allocating G&A expenses must include any unallowable costs that were charged or allocated to the base. For instance Overhead unallowable costs must be included in the G&A base. FAR 31.203(d) requires that G&A expenses be allocated to final cost objectives through a base that contains unallowable costs. FAR 31.203(d) states that "all items properly includable in an indirect cost base should bear a pro rata share of indirect costs irrespective of their acceptance as Government contracts costs."

Purpose

The purpose of this Cost Accounting Standard is to provide criteria for the allocation of business unit general and administrative (G&A) expenses to business unit final cost objectives based on their beneficial or causal relationship. These expenses represent the cost of the management and administration of the business unit as a whole.

Fundamental Requirement

Business unit G&A expenses shall be grouped in a separate indirect cost pool which shall be allocated only to final cost objectives.

G&A Base

CAS 410 requires that a cost input base used to allocate the G&A expense pool include all significant elements of that cost input which represent the total activity of the business unit. The cost input base selected to represent the total activity of a business unit during a cost accounting period may be;

• 1. Total Cost Input (TCI)

• 2. Value-Added (VA) cost input (TCI less material and subcontract costs) - used where the inclusion of material and subcontract costs would significantly distort the allocation of the G&A expense pool in relation to the benefits received and where costs other than direct labor are significant measures of total activity.

• 3. Single element cost input - used where a single element base (e.g. direct labor hours, direct labor dollars, etc) represents that total activity of a business unit. A single element base is inappropriate where it is an insignificant part of the total cost of some of the final cost objectives.

The determination of which cost input base best represent the total activity of a business unit must be judged on the basis of the circumstances of each business unit.