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S59_Consultant Overhead Rates and Direct Charges_LTC2013

S59_Consultant Overhead Rates and Direct Charges_LTC2013

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Published by walaywan
2013 Louisiana Transportation Conference Session 59
2013 Louisiana Transportation Conference Session 59

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Published by: walaywan on Mar 20, 2013
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03/27/2013

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Overhead vs.

Direct Expenses
• How should it be billed? • What is reasonable? • When is it practical? • Is the cost allocable?

Deciding:

What is a Direct Expense?
A direct cost is any cost that can be identified specifically with a particular final cost objective.

Direct Expense is NOT…
• An item normally furnished by the consultant. • An item purchased for our job, but will have useful life after the contract is complete. • An item that may be used on more that one job, even if purchased during our job. • Items normally charged to the consultant’s overhead, and we allow as part of the approved overhead rate. • Costs that are not reasonable, allocable and not determined allowable under the FAR’s (Federal Acquisition Regulations).

Indirect Cost
An indirect cost is any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives or an intermediate cost.

Overhead Rate
• Simply put it is a ratio of Allowable Indirect Cost divided by Allowable Direct Labor.

Allowable Indirect Cost = Overhead Rate Allowable Direct Labor

Reasonable Cost
• A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. • What is reasonable depends upon a variety of considerations and circumstances, including…

Reasonable Cost (Cont.)
1. Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance. 2. Generally accepted sound business practices, arm’slength bargaining, and Federal and State laws and regulations. 3. The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large. 4. Any significant deviations from the contractor’s established practices.

Allocability
• A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship. Subject to:
(a) (b) (c) 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. Is necessary to the overall operation of the business, although a direct relationship to the particular cost objective cannot be shown.

Determining Allowability
• The factors to be considered in determining whether a cost is allowable includes the following:
(1) Reasonableness. (2) Allocability. (3) Standards promulgated by the Cost Accounting Standards (CAS) Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the particular circumstances. (4) Terms of the contract.

Questions or Comments? DOTD Audit & Quality Control Staff
• John J. Lyon, Audit Director, 225-379-1404 john.lyon@la.gov • Randy Jarreau, Audit Manager, 225-379-1782 randy.jarreau@la.gov • Brian Carter, Auditor Supervisor, 225-379-1476 brian.carter@la.gov

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