RGCI - Cost Accounting Standard (CAS) 410 – Allocation of Business Unit G&A Expenses to Final Cost Objectives

Basic Requirements

CAS 410 provides the criteria for allocating business unit general and administrative (G&A) expenses to final cost objectives based on their causal beneficial relationship. The standard requires that one of three cost input bases must be used unless there is a special allocation to a particular final cost objective. Contractors should select the cost input base which best represents the total activity of a typical cost accounting period for the production of goods and services for the business unit.

CAS 410-30 includes several definitions that are key to understanding its requirements:

  • Business unit means any segment of an organization, or an entire business organization which is not divided into segments.
  • General and administrative (G&A) expense means any management, financial, and other expense which is incurred by or allocated to a business unit, and which is for the general management and administration of the business unit as a whole.
  • Cost Input means the cost, except G&A expenses, which for contract costing purposes is allocable to the production of goods and services during a cost accounting period.
  • Final cost objective means a cost objective which has allocated to it both direct and indirect costs, and, in the contractor's accumulation system, is one of the final accumulation points.

Cost Input Bases

CAS 410 describes three types of cost input bases that may be used for allocation. The determination of which cost input base best represents the total activity of a business unit must be judged on the basis of the circumstances of each business unit and should be documented.

  1. A Total Cost Input (TCI) Base consists of all costs of the business, excluding G&A. It is generally acceptable as an appropriate measure of the total activity of the business unit.
  2. A Value-Added (VA) Input Base is total cost input (defined above) less direct material and subcontract costs. This base is used when the inclusion of material and subcontract costs significantly distorts the allocation of G&A in relation to the benefits received.
  3. A Single Element Input Base, such as direct labor dollars or direct labor hours may best represent the total activity of the business unit. A single element base may not produce equitable results where other measures of activity are also significant in relation to total activity.

At one time, Total Cost Input was the most common allocation base used to allocate G&A, but we have seen many contractors changing to a Value-Added Input base due to the significant amount of subcontract costs on contracts.  CAS 410 requires the use of the allocation base that best fits the company. When changing from a TCI base to a VA base for allocating G&A, in addition to submitting the accounting change in advance to the Government for approval, you should document and be able to support the decision for the change.

Other Requirements of CAS 410

G&A Costs that Benefit Other Segments

If a segment performs both home office functions and performs as an operating segment, the expense of the home office functions shall be segregated and allocated to all benefiting segments. This includes the segment performing the home office function.

Special Allocation

If a particular final cost objective receives significantly more or less benefit from G&A expense than other final cost objectives the business unit shall account for this particular final cost objective by a special allocation from the G&A expense pool to the particular final cost objective commensurate with the benefits received. The amount of the special allocation shall be excluded from the G&A expense pool and the costs associated with the final cost objective are excluded from the allocation base.

The real emphasis of CAS 410. G&A expense must be allocated over a cost input base that best represents the total activity of a typical cost accounting period.

Watch for our next blog when we continue review of the unique CAS standards that comes into effect with full CAS coverage. The next blog will focus on CAS 403, Allocation of Home Office Expenses to Segment.

CAS Applicability Information and Resources DOWNLOAD NOW

Written by Redstone Team

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Contracts & Subcontracts Administration, DCAA Audit Support, Government Regulations, Cost Accounting Standards (CAS)