indirect cost workshop
Post on 30-Dec-2015
30 Views
Preview:
DESCRIPTION
TRANSCRIPT
Indirect Cost Workshop
Lori L HeathCFO/Contracts Manager
Minerva Engineering(formerly an Independent Consultant for Small Government
Contractors)
Adapted from
Indirect Cost Workshop• What is the Purpose of Rates?• What is a Direct Cost?• What is an Indirect Cost?• What is an Unallowable Cost?• What is an Allocation?
– Pool vs Base– Service Center (Shared Costs/Occupancy)
Indirect Cost Workshop• Rates – Different Methods similar results
– Composite– “Wrap” One rate which includes all indirect elements– Non Composite/Non-Additive (fringe separate bid rate)– Non Composite/Additive (fringe included in OH and
G&A– Subcontracts/Material Handling (sometimes referred to
as “pass through”)
Indirect Cost Workshop
• DCAA Involvement– FPRP = Forward Pricing Rate Package– FPRA = Forward Pricing Rate Agreement– Provisional Billing Rates– Incurred Cost Submissions (ICE)– Accounting System Approvals
• Questions
Income StatementRevenue 207,498 Direct Labor 93,384 Direct Travel 6,000 Direct Consultants - Direct Subcontracts - Direct Materials - Direct ODC 2,000 Total Cost of Goods 101,384 Fringe Expense 30,392 Overhead Expense 31,481 G&A Expense 24,850 IR&D/B&P Expense 527 Total Cost of Operations 87,251 Gross Profit from Operations 18,863 Interest Income (150) Other Income - Interest Expense 3,000 Unallowable Expense 2,000 Total Other 4,850 NET INCOME 14,013Net Profit after Unallowables 7%
Direct Costs = “Base” or Denominator of Rate Computation
Indirect Costs = “Pool” or Numerator of Rate Computation
Unallowable expenses
Total Direct + Indirect Expenses = $188,635
Pool Examples
Holiday Expense
PTO (Vac/Sic/Hol)
Medical Insurance
Dental Insurance
Disability Insurance
Life Insurance
ER Payroll Taxes
Worker's Comp Expense
401(K) Retirement Plan
Bonus Expense
Relocation Expense
Indirect Travel
Education & Seminars
Office Expense/Supplies
Postage/Express Mail
Printing/Stationary
Dues & Subscriptions
Computer Hardware
Computer Software
Computer Supplies
R&M - Equipment
Rent Expense
Utilities
Telephone Expense (cell)
Indirect Travel
Business Meetings
Consulting
Professional Services
Education & Seminars
Bus Dev Travel
Legal Expense
Accounting Expense
General Liability Insurance
Banking Fees
IR&DB&P Related Expenses Plus Fringe and O/H on Labor
Charity/Contributions
First Class Premiums
Fines & Penalites
Alcohol/Entertainment
Interest Expense
Interest Income
Federal Taxes
Fringe Expense Overhead Expense G&A Expense Unallowable Expense
**The colored expenses could be part of an intermediate pool or service center
Rate Scenarios – Proposal with fringe, OH & G&A
Fringe Rate FY14 Forecast – Non Composite
Pool 30,392
Base 95,520
Rate 31.82%
Overhead Rate
Pool 32,025
Base 93,811
Rate 34.14%
G&A Rate
Pool 25,659
Base 162,976
Rate 15.74%
The sum of the G&A Pool
and base = $188,635
The Fringe Rate is a separate bid rate
The O/H pool includes Fringe on O/H Labor only
The G&A pool includes the Fringe on G&A Labor only
Rate Scenarios – proposal with Overhead & G&A
Fringe Rate (Info Only)FY14 Forecast -
Composite
Pool 30,392
Base 95,520
Rate 31.82%
Overhead Rate
Pool 61,874
Base 93,811
Rate 65.96%
G&A Rate
Pool 25,659
Base 162,976
Rate 15.74%
The sum of the G&APool and
base = $188,635
The Fringe Rate is for Info only – no separate fringe rate
The O/H pool included the Fringe on all Labor except G&A
The G&A pool includes the Fringe on G&A Labor
Full Application of RatesComposite Rates
Non Composite/Non Additive Rates
Direct Labor
93,384
O/H on Labor
65.96% 61,592
Direct M/ODC
8,000
Subtotal 162,976
G&A on Subtotal
15.74% 25,659
Total Cost
$188,635
Direct Labor
93,384
Fringe on Labor
31.82% 29,713
O/H on Labor
34.14% 31,879
Subtotal 154,976
Direct M/ODC
8,000
Subtotal 162,976
G&A on Subtotal
15.74% 25,659
Total Cost $188,635
Wrap Rates are used when a single figure captures all the costs often called “fully burdened” For example, a contractor reported the following for as the basis to develop a wrap rate: 1. 50,000 hours direct labor (DL) 2. $1 million DL costs 3. $.5 million manufacturing overhead (OH)4. $.2 million other costs There are two ways to calculate a wrap rate $1 million DL cost ÷ 50,000 DL hours = $20 DL rate $500,000 manufacturing OH ÷ 50,000 DL hours = $10 manufacturing overhead rate $200,000 other costs ÷ 50,000 DL hours = $4 other costs rate $34 would be the fully burdened wrap rate for each labor hour
WRAP Rates
Another way to look at it:
Direct Labor cost $1,000,000 Manufacturing overhead $500,000 Other costs $200,000
Total $1,700,00 ÷ 50,000 DL hours = $34 fully burdened labor or wrap rate
WRAP Rates continued
14 - 12
Wrap Rates continued again• Yet another way based on rates
– Wage Rate = $52.50 per labor hour – Overhead Rate = (150%)(Wage Rate) = (150%)($52.50)
= $78.75 per labor hour– G&A = (15%)(Wage Rate + Overhead Rate) = (15%)
($52.50 + $78.75) = $19.69 per labor hour– Wrap Rate = Wage Rate + Overhead Rate + Other Cost
Rate = $52.50 + $78.75 + $19.69 – Wrap or fully burdened rate = $150.94 per labor hour
Subcontract/Material Handling• Direct Subcontracts and Direct Materials are removed from the
Base of the G&A Rate• Costs associated with managing these efforts (Subc mgmt,
purchasing, receiving, etc) make up a new Pool plus applicable Fringes
• Remember all costs are recovered – – High Subc or Materials contracts pay less G&A because they
pay the “pass through”– All Labor intensive contracts pay a higher G&A
Other ThingsDifferent bases are used for rates for example:
Direct labor hours Direct labor dollarsNumber of units producedNumber of machine hours
Rule is the base and pool have to have a logical relationship
G&A determinations based on total cost input versus value added
• Some companies apply G&A to all costs, others only consider the value they have added and not the costs for materials or subcontracts – consider for example
Total Cost Rate price Value Added
MaterialMaterial OH 10%
$50,000 $5,000 10%
$50,000 $5,000
EngineeringEng OH 80%
$20,000 $16,000 80%
$20,000 $16,000
ManufacturingMfg OH 200%
$40,000$80,000 200%
$40,000$80,000
Sub total $211,000 $211,000
Less mat ($50,000)
VA base $161,000
G&A 10% $21,100 12.22% $19,678
Total $232,100 $230,678
DCAA Involvement– FPRP = Forward Pricing Rate Package– FPRA = Forward Pricing Rate Agreement– Provisional Billing Rates– Incurred Cost Submissions (ICE)– Accounting System Approvals– Pricing Support for Potential Customers– Bid Validations
Summation on Rate Scenarios• Rates are a means to recover all costs of doing
business – whether direct or indirect• Unallowable come out of profits• Presentation, Presentation, Presentation
Questions?
top related