Index
A
accounting data, 234
activity-based costing (ABC), 205, 209
alcoholic beverages, 36
Allegheny method, 150, 152–153
analytical techniques, 235
anticipated future operations, 236–237
Armed Services Board of Contract Appeals (ASBCA), 137
asset write-ups, 36
average labor rates, 220–222
B
bad debts, 32
basis of estimate (BOE), 18–19, 27–28, 57–58, 111
burden fluctuation method, 153–154
C
Calculation of Average Hours Based on Equivalent Units, 187
Calculation of Equivalent Units, 187
Canadian method. See Hudson method
Carteret method, 153–154
CAS. See Cost Accounting Standards
cash discounts, 56
Certification of Current Cost or Pricing Data, 262
Changes or Additions to Make-or-Buy Program, 91
coefficient of determination, 189
commercial and market pricing, 205–206
commercial pricing additives, 206–207
company-produced components, 228–229
comparative estimating technique, 8
contract clauses
Changes or Additions to Make-or-Buy Program, 91
Facilities Capital Cost of Money, 92
Integrity of Unit Prices, 92
Limitations on Pass-Through Charges, 94
Limitations on Pass-Through Charges—Identification of Subcontract Effort, 94–95
Notification of Ownership Changes, 93
Pension Adjustment and Asset Reversions, 92
Price Reduction for Defective Certified Cost or
Pricing Data, 91
Price Reduction for Defective Certified Cost or Pricing Data—Modifications, 91
Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data, 93
Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data—Modifications, 93–94
Reversion or Adjustment of Plans for Postretirement Benefits Other than Pensions, 93
Subcontractor Certified Cost or Pricing Data, 91
Subcontractor Certified Cost or Pricing Data—Modifications, 91–92
Waiver of Facilities Capital Cost of Money, 92–93
contract modification scenarios, 127
Contract Pricing Proposal Cover Sheet, Standard Form 1411, 95–96
contributions, 32
cost accounting standards board disclosure statement, 106–109
Cost Accounting Standards (CAS), 12
cost-based pricing
importance, 2
market-based, compared to, 2–3
need for, 3
types, 1
work breakdown structure, 3–4
cost elements
direct labor, 101
facilities capital cost of money, 101
indirect costs, 101
materials and services, 99–100
other costs, 101
royalties, 101
cost limitations
alcoholic beverages, 36
asset write-ups, 36
bad debts, 32
contributions, 32
cost of mischarging, 32–33
donations, 32
entertainment, 32
FAR Subpart 31.2, 31–32
fines, 32–33
goodwill, 36
interest on borrowings, 33
legal costs, 34–35
lobbying, 33–34
losses on other contracts, 34
organization costs, 34
penalties, 32–33
public relations and advertising, 32
cost or pricing data, 248–249
costs, consistency in estimating and recording
contract subject to cost accounting standards, 104–105
cost accounting standards, 103–104
cost accounting standards board disclosure statement, 106–109
full or modified coverage, 105–106
importance, 103
cover sheet, 95–96
Cumulative Average Theory Applied to Unit Theory Data, 181
Cumulative Average Theory Versus Unit Curve Theory, 182
currency exchange, 56
curves, selection of, 189
D
Data on All Work, 192
Data on Unchanged Portion of Work, 192
Data Points Around Trend Line, 172
Data Sweep Checklist, 261
data sweeps, 260–261
DCAA. See Defense Contract Audit Agency
DCAA Contract Audit Manual (DCAM), 11
DCMA. See Defense Contract Management Agency
DD Form 1547 extract, 71
defective pricing, 247–248
Defense Contract Audit Agency Contract Audit Manual (DCAM), 83
Defense Contract Audit Agency (DCAA)
accounting data, 234
analytical techniques, 235
anticipated future operations, 236–237
applicability of the labor cost data, 215
average labor rates, 220–222
basis of estimate, 212
bill of materials, 223–224
company-produced components, 228–229
corporate or home office assessments, 240
depreciation, 239
direct labor, 211
direct materials, 223
engineering drawings, 226
estimates based on technical data, 216
evaluation of direct-labor hour estimates, 216
evaluation of estimated direct-labor rates, 218
EZ-Quant computer programs, 188
forward pricing rates, 121
fringe benefits, 238–239
importance, 1, 83
indirect costs, 236
indirect labor, 238
indirect material, 238
individual employee labor rates, 219–220
inventory adjustments, 232–233
labor categories, 212
labor cost data, 214–215
labor productivity, 217–218
labor usage, 222–223
material cost/quantity curve, 233
obsolescence, 232–233
operation time sheets and shop methods, 216–217
operation time standards, 217
operations time sheets, 225–226
other considerations, 212–214
overall indirect costs, 237–238
payroll taxes, 238–239
percentage and conversion factors, 234
pre-established labor rates, 222
previous purchase order prices, 228
price escalation, 240–241
proposal reviews, 122–123
purchasing procedures, 227–228
pyramiding of costs and profit, 229
quantity estimates, 224–225
rent, 239–240
residual inventories, 230–231
rework, 231–232
scrap, 231–232
sources for pricing, 226–227
spoilage, 231–232
subcontract decrements, 229–230
travel and subsistence, 235–236
trends of labor rate, 223
uncompensated overtime, 218–219
variance in direct-labor cost estimates, 215–216
Defense Contract Management Agency (DCMA), 1
Defense Federal Acquisition Regulation Supplement (DFARS), 65
Department of Defense Profit Guidelines
contract length factor, 73–74
contract-type risk, 71–73
cost efficiency factor, 76–77
cost financed, 73
DD Form 1547 extract, 71
facilities capital employed, 75–76
management risk, 70–71
Normal Values and Designated Ranges by Asset Type, 76
performance risk, 68–69
Profit Guidelines for Standard and Technology Incentives, 71
profit objective, 68
Profit Objectives by Contract Type Risk, 72
Profit Weighting for Technical and Management Risk, 69
Record of Weighted Guidelines Application, 66–67
technical risk, 69–70
working capital adjustment, 71–74
Department of Energy (DOE), 80
depreciation, 239
design-to-cost, 209
DFARS. See Defense Federal Acquisition Regulation Supplement
DFARS Proposal Adequacy Checklist, 114–120
direct labor, 211
direct-labor hours, contract modifications
causes, 127–128
cost accounting, 128
Examples of Potential Claim Scenarios, 131
idle direct labor, 134
improvement curve, 132–134
loss of efficiency, 131–132
supporting documentation, 128–131
direct-labor hours, estimating, 9–12
direct-labor rates
blended rates, 18
contract modifications causes, 134
employer turnover, 14
Fair Labor Standards Act, 13
future business, 14
labor rate categories, 13
labor rate escalation, 136–137
overtime premium, 17
overview, 12–13
pre-established rates, 17
reasonableness, 17
Service Contact Act, 13
standard cost systems, 17
supporting documentation, 134–136
uncompensated overtime, 14–17
Walsh-Healey Public Contracts Act, 13
direct materials, 223
direct materials and subcontracts, contract modifications
causes of material cost changes, 138
cost accounting, 139
definition, 137
intercompany transfers, 141–142
material adjustments, 140–141
pricing, 139–140
supporting documentation, 138–139
Disclaimers, 262–263
document data submissions, 263
DoD. See Department of Defense
DOE. See Department of Energy
donations, 32
E
Eichleay method, 149–150, 152
Emden method, 156–157
Employee Worksheet, 39
Engineering Change—All Other Components, 193
Engineering Change—Component A, 193
engineering changes
continuity of production, 198
Data on All Work, 192
Data on Unchanged Portion of Work, 192
Engineering Change—All Other Components, 193
Engineering Change—Component A, 193
Impact of Break in Production, 196
Impact of Engineering Change, 190
Impact of Retained Learning, 194–195
importance, 189–191, 194
interruptions in production, 195–197
Learning Curve Data with Change at Lot 6, 191
Lost Learning Calculation, 201
Lost Learning Factors, 197
measuring retained prior improvement, 194–195
methods, 198
Personnel, 198
Sample Application of Lost Learning Calculation, 200
special tooling, 198–200
supervisory learning, 198
variations in rate of improvement and cost level, 202
variations in rate of production, 200, 202
engineering drawings, 226
entertainment, 32
equipment, 58
equipment costs, construction contracts, 142–145
allowable equipment costs, 142–143
equipment loss of efficiency, 145
idle equipment and idle capacity, 144
equipment costs, supply contracts, 145–146
depreciation, 145
idle facilities and idle capacity, 145
special tooling and special test equipment costs, 146
Ernstrom method, 155–156
estimating by consensus, 8
estimating principles, 36–38
estimating systems, Defense FAR Supplement
acceptable systems, 111–113
DFARS Proposal Adequacy Checklist, 114–120
policy, 110–111
potential deficiencies, indications of, 113
system deficiency process, 114
estimating systems, FAR, 110
estimating techniques
Allegheny method, 150, 152–153
burden fluctuation method, 153–154
Carteret method, 153–154
contract changes, 146
Eichleay method, 149–150, 152
Emden method, 156–157
Ernstrom method, 155–156
Facts for Unabsorbed Overhead Calculations, 151
Hudson method, 154
Impact of Delayed Work—Costs for Accounting Period, 148
Impact of Delayed Work—Unabsorbed Overhead Cost Allocation, 149
impact of inefficiencies, 147
Manshul method, 156
Simulation method, 155
unabsorbed overhead, 147–149
estimating worksheets
Employee Worksheet, 39
fringe benefit, larger companies, 47
Fringe Benefit Calculation Worksheet, 40
general and administrative, larger companies, 49
General and Administrative Calculation Worksheet, 43–45
overhead, larger companies, 48
Overhead Calculation Worksheet, 41–42
overview, 38
pricing factors, larger companies, 46
Examples of Potential Claim Scenarios, 131
exemption for adequate price competition, 244–245
exemption for commercial items, 245
extended overhead, delayed work, 157–159
F
facilities capital cost of money (FCCOM)
contract clause, 92
contract facilities, 62
factors computation, 61
overview, 59–60
profit objective amount, 69
Facts for Unabsorbed Overhead Calculations, 151
Fair Labor Standards Act, 13
FAR. See Federal Acquisition Regulation
FAR 15.408 Solicitation Provisions and Contract Clauses
Cost Elements, 86–90
General Instructions, 84–86
overview, 84
Federal Acquisition Regulation (FAR), definition, 1
Federal Insurance Contribution Act (FICA), 135
Federal Supply Service (FSS), 205
field pricing support, 101–103
first-in-first-out (FIFO), 23, 138
forward pricing rate agreement (FPRA), 17, 120–121
forward pricing rates, 121
Fringe Benefit Calculation Worksheet, 40
fringe benefits, 238–239
FSS. See Federal Supply Service
full-time equivalent (FTE), 12
G
GAAP. See generally accepted accounting practices
General and Administrative Calculation Worksheet, 43–45
general and administrative (G&A), 30, 65
General Services Board of Contract Appeals (GSBCA), 132
generally accepted accounting practices (GAAP), 29
goodwill, 36
GSCBA. See General Services Board of Contract Appeals
H
holiday differential, 56
Hudson method, 154
I
Impact of Break in Production, 196
Impact of Delayed Work—Costs for Accounting Period, 148
Impact of Delayed Work—Unabsorbed Overhead Cost
Allocation, 149
Impact of Engineering Change, 190
Impact of Retained Learning, 194–195
improvement curve techniques, 187–188
improvement curves, concept overview
amount of manual labor to machine time, 177
applications, 166–167
breaks in production, 180
complexity of product, 177
from costs of any two units, 174
Data Points Around Trend Line, 172
description, 168–171
documentation, 179
engineering changes, 179
experimental model costs, 178
factors affecting run cost, 173
fitting to data, 172–173
fluctuations in volume, 180
introduction, 165–166
Learning Curve on Log-Log Paper, 170
Learning Curve on Regular Chart Paper, 168
Learning Curve Slopes of 70%, 80%, and 90%, 171
make-or-buy practices, 179
management and work force experience and skill, 178
Multiple Learning Curve Projections, 176
number of shifts and overtime, 178
period between production unit, 178–179
pilot shop production costs, 178
plant capacity, 178
previous experience, 179
prototype costs, 178
significance of vertical position and slope, 176–177
Significant Cost Reduction, 177
slope, 173–174
Theoretical Unit #1, 175
Unit Theory Data, 169
vertical position and length of production run, 174–176
improvement curves, fitting to lot data
Calculation of Average Hours Based on Equivalent
Units, 187
Calculation of Equivalent Units, 187
computer programs, 186
equivalent units, 186
overview, 185–186
Status of Production, 187
improvement curves, theory variations, 202
improvement curves, types
comparison of improve curve theories, 183–185
cumulative average curve theory, 183
Cumulative Average Theory Applied to Unit Theory Data, 181
Cumulative Average Theory Versus Unit Curve Theory, 182
overview, 180
unit curve theory, 180–182
Unit Curve Theory and Cumulative Average Theory, 184
Unit Curve Theory Versus Cumulative Average Theory, 181
Unit Theory Applied to Cumulative Average Theory Data, 182
incoming material inspection, 56
incremental pricing, 208–209
indirect cost structure, 29–31
indirect costs, 236
indirect labor, 238
indirect material, 238
individual employee labor rates, 219–220
Integrity of Unit Prices, 92
intercompany transfers, 26–27
interest on borrowings, 33
inventory adjustments, 56, 232–233
J
judgmental estimating technique, 8
L
labor categories, 212
labor cost data, 214–215
labor productivity, 217–218
labor usage, 222–223
last-in-first-out (LIFO), 23, 138
Learning Curve Data with Change at Lot 6, 191
Learning Curve on Log-Log Paper, 170
Learning Curve on Regular Chart Paper, 168
Learning Curve Slopes of 70%, 80%, and 90%, 171
legal costs, 34–35
letter contracts, 259–260
LIFO. See last-in-first-out
Limitations on Pass-Through Charges, 94
Limitations on Pass-Through Charges—Identification of Subcontract Effort, 94–95
lobbying, 33–34
losses on other contracts, 34
Lost Learning Calculation, 201
Lost Learning Factors, 197
M
make-or-buy decisions, 255
management decision affecting costs, 255
Manshul method, 156
markup. See profit or fee
master list of negotiations, 264
material cost/quantity curve, 233
material management and accounting system (MMAS), 23
material prices
attrition, 25
inventory, 23–24
other considerations, 25
overview, 22–23
residual materials, 24–25
material quantities, 21–22
MMAS. See material management and accounting system
Multiple Learning Curve Projections, 176
N
nonrecurring costs, 253
Normal Values and Designated Ranges by Asset Type, 76
Notification of Ownership Changes, 93
O
obsolescence, 232–233
operation time sheets and shop methods, 216–217
operation time standards, 217
organization costs, 34
other direct costs
basic concepts, 51–54
basis of estimate, 57–58
cash discounts, 56
equipment costs, construction contracts, 142–145
equipment costs, supply contracts, 145–146
estimating, 56
generally direct costs, 55–56
generally indirect costs, 55
holiday differential, 56
incoming material inspection, 56
inventory adjustments, 56
overtime premium, 56
precision versus practicality, 54
predominantly direct costs, 56
too much information, 54–55
travel, 142
Overhead Calculation Worksheet, 41–42
overtime premium, 56
P
parametric estimating, 4–7
payroll taxes, 238–239
penalties, 32–33
Pension Adjustment and Asset Reversions, 92
Personnel, 198
PERT. See program evaluation and review technique
photographic services, 58
postage, 58
postnegotiation meetings, 264
pre-established labor rates, 222
pre-price agreement cut-off dates on data, 260
prenegotiation meetings, 264
price analysis, 207
price and cost realism, 109–110
price escalation, 240–241
price increase, 258–259
price negotiation memorandum, 263
Price Proposal, Acme Manufacturing Company, 124–125
Price Reduction for Defective Certified Cost or Pricing Data, 91
Price Reduction for Defective Certified Cost or Pricing Data—Modifications, 91
pricing, definition, 1
pricing proposal, required information, 97–99
printing, 58
production method changes, 253–254
profit, 159–162
Profit Guidelines for Standard and Technology Incentives, 71
Profit Objectives by Contract Type Risk, 72
profit or fee. See also Department of Defense Profit Guidelines
Department of Energy, 80–81
Federal Acquisition Regulation, 63–65
NASA guidelines, 77–79
other agencies, 80
overview, 63
Structured Approach Profit/Fee Objective, 78–79
Profit Weighting for Technical and Management Risk, 69
program evaluation and review technique (PERT), 3–4
proposal/contract file, 264
proposal presentation, 123
public relations and advertising, 32
purchasing procedures, 227–228
purchasing volume changes, 253–254
R
Record of Weighted Guidelines Application, 66–67
record retention, 264
rent, 239–240
reports, 58
reproduction, 58
Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data, 93
Requirements for Certified Cost or Pricing Data and Data Other than Certified Cost or Pricing Data—Modifications, 93–94
residual inventories, 230–231
Reversion or Adjustment of Plans for Postretirement Benefits Other than Pensions, 93
rework, 231–232
roundtable estimating technique, 8
royalties, 58, 101
S
Sample Application of Lost Learning Calculation, 200
scrap, 231–232
Service Contact Act, 13
shipping, 58
should-cost pricing, 7–8
Significant Cost Reduction, 177
Simulation method, 155
spoilage, 231–232
Status of Production, 187
subcontract prices, 26, 252–253
Subcontractor Certified Cost or Pricing Data, 91
Subcontractor Certified Cost or Pricing Data—Modifications, 91–92
subcontractor data, 250–252
T
Theoretical Unit #1, 175
TINA. See Truth in Negotiations Act
training, 58
travel, 142, 235–236
Truth in Negotiations Act (TINA)
Certification of Current Cost or Pricing Data, 262
consistency, 264
contractor reliance on quotes, 252
cost or pricing data, 248–249
covered contracts, 244
data supporting projections, 254
Data Sweep Checklist, 261
data sweeps, 260–261
Disclaimers, 262–263
document data submissions, 263
exemption for adequate price competition, 244–245
exemption for commercial items, 245
high-risk areas, 264
importance, 243–244
letter contracts, 259–260
make-or-buy decisions, 255
management decision affecting costs, 255
master list of negotiations, 264
nonrecurring costs, 253
postnegotiation meetings, 264
potential and routine issues, 264
pre-price agreement cut-off dates on data, 260
prenegotiation meetings, 264
price increase, 258–259
price negotiation memorandum, 263
price reduction, 91
production method changes, 253–254
Truth in Negotiations Act (TINA) (continued)
proposal/contract file, 264
proving defective pricing, 247–248
purchasing volume changes, 253–254
reasonably available data, 255–256
record retention, 264
reliance, 257–258
subcontract prices negotiated after prime’s price agreement, 252–253
subcontracting considerations, 246–247
subcontractor data, 250–252
unit-cost trends, 254
vendor/subcontractor quotes, 249
waivers, 245–246
U
unabsorbed overhead, 147–149
uncompensated overtime, 218–219 unit-cost trends, 254
Unit Curve Theory and Cumulative Average Theory, 184
Unit Curve Theory Versus Cumulative Average Theory, 181
Unit Theory Applied to Cumulative Average Theory Data, 182
Unit Theory Data, 169
V
value-based pricing, 208
vendor/subcontractor quotes, 249
W
Waiver of Facilities Capital Cost of Money, 92–93
waivers, 245–246
Walsh-Healey Public Contracts Act, 13
work breakdown structure, 3–4
working capital adjustment, 71–74
