case

Follow the Four Step Cost Impact Process

Step 2: Determine Impact Population

• Review Schedule H to determine the affected contract population

Step 3: Calculate Impact

• Calculate the difference in cost between utilizing the “current state” rates and the “future state” rates by contract on Schedule H

• Calculate impact per day and extrapolate over the remaining Period of Performance

• Assume 365 days in a year for daily cost impact calculations - can utilize the following formula: DAYS (end date, start date) +1

• Reminder: CAPC will go into effect at the beginning of FY18 (January 1, 2018)

• Utilize “cost impact math” to determine the increase/decrease in cost to the Government

• Big Money will be treating T&M contracts as FFP for cost impact calculations

• E.g., A cost decrease on Fixed Price contracts would be a cost increase to the Government

• Summarize results by contract type and agency on the Impact Summary tab

COST IMPACT CASE STUDY

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Follow the Four Step Cost Impact Process

Step 1a: Identify Change – G&A Base Change from TCI to Value-Added

• Historically, Big Money has utilized a Total Cost Input (TCI) G&A base due to lack of significant subcontractor and material costs

• Due to significant business growth over the past few years, Big Money has been subcontracting out more of their contract work to other companies

• This has led to a significant rise in subcontractor cost and the associated administrative time required to manage those subcontracts. Therefore, Big Money Leadership would like to segregate their subcontract and material costs from their G&A costs.

• This requires Big Money to create a separate Material Handling pool / rate

• And requires Big Money to change their G&A base from TCI to Value-Added

• Big Money directed us to use the assumption that the Materials & Supplies account in the G&A pool is solely related to subcontractors

• This is a Cost Accounting Practice Change (CAPC) due to a change in the allocation of G&A costs from TCI to Value-Added

COST IMPACT CASE STUDY - HOMEWORK

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Follow the Four Step Cost Impact Process

Step 1b: Perform Indirect Rate Modeling

• Make the necessary adjustments to Schedules A, B, C, D (as applicable) in order to process the CAPC

• Identify the subcontractor & material costs in the G&A pool (Sch. B) (account 800-009)

• Remove the subcontractor & material costs from the G&A pool

• Add the subcontractor & material costs to the MH pool (Sch. C-2)

• Create the MH base (MH base should include direct subcontractor & material expenses)

• Remove direct subcontractor and direct material expenses from the G&A base (on the Sch. E)

• Add direct subcontractor and direct material expenses to the MH base (on the Sch. E)

• Update the G&A base

• Add the MH pool to the G&A Base (in this specific case study, the entire MH base is direct subs/materials, so the entire MH pool would end up in a value-add G&A base) (in other situations, the MH base may include B&P/IR&D subs/materials, for which only a portion of the MH pool would end up in the value-add G&A base)

• Update the Sch. A to include the MH pool, base and rate

• Review the Sch. A to ensure the rate differences logically make sense

COST IMPACT CASE STUDY - HOMEWORK

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Follow the Four Step Cost Impact Process

Step 2: Determine Impact Population

• Review Schedule H to determine the affected contract population

Step 3: Calculate Impact

• Calculate the difference in cost between utilizing the “current state” rates and the “future state” rates by contract on Schedule H

• Don’t forget to apply the MH rate!

• Calculate impact per day and extrapolate over the remaining Period of Performance

• Assume 365 days in a year for daily cost impact calculations - can utilize the following formula: DAYS (end date, start date) +1

• Reminder: CAPC will go into effect at the beginning of FY18 (January 1, 2018)

• Utilize “cost impact math” to determine the increase/decrease in cost to the Government

• Big Money will be treating T&M contracts as FFP for cost impact calculations

• E.g., A cost decrease on Fixed Price contracts would be a cost increase to the Government

• Summarize results by contract type and agency on the Impact Summary tab

COST IMPACT CASE STUDY - HOMEWORK

45