Tuesday, January 11, 2011

CAS 401 - Consistency in Estimating, Accumulating, and Reporting Costs

Cost Accounting Standard 401 - Consistency in Estimating, Accumulating, and Reporting Costs. This standard is designed to achieve consistency in the cost accounting practices used by a contractor in estimating costs for proposal purposes with those practices used in accumulating and report costs during contract performance. It is also designed to provide a basis for comparing such costs. The main idea here is that the consistent application of cost accounting practices will facilitate the preparation of reliable cost estimates used in pricing a proposal and then, once performance under the contract begins, a means to compare those cost estimates with the actual cost of contract performance.

This consistency requirement between estimating and accumulating costs is a two-part requirement. First, a contractor's practices used to estimate costs in pricing proposals must be consistent with practices used in accumulating actual costs. Second, the contractor's practices used in accumulating costs must be consistent with practices used to estimate costs in pricing the related proposal. Noncompliance with this standard can exist because a contractor has failed to estimate its cost in accordance with its established or disclosed accounting practices and can also occur when a contractor estimates in accordance with its disclosed or established practices but accumulates on a different basis.

To illustrate, a contractor who estimates average engineering direct labor rates by labor category and collects costs by labor category complies with this standards. On the other hand, a contractor who estimates engineering labor by cost function (i.e. drafting, manufacturing, etc) but accumulates total engineering labor in one undifferentiated account would not be in compliance.

CAS 401 applies to both full and modified CAS-covered contracts.

Next: CAS 402 - Consistency in Allocating Costs Incurred for the Same Purpose.

1 comment:

  1. If contractor estimates average labor rates by labor category but accumulates and bills costs at actual individual labor rate (not the actual average of all employees under the same labor category) is this compliant?