FAR Part 31 Deck 1 (Contract Cost Principles and Procedures)

Question 1

What is the scope of Part 31?

Answer 1

Cost principles and procedures for pricing contracts and determining costs

This includes subcontracts and modifications whenever cost analysis is performed.

Question 2

Define ‘Accrued benefit cost method’.

Answer 2

An actuarial cost method assigning units of benefits to each cost accounting period valued as they accrue

This method is also known as the unit credit cost method without salary projection.

Question 3

What does ‘Accumulating costs’ mean?

Answer 3

Collecting cost data in an organized manner, such as through a system of accounts.

Question 4

What is ‘Actual cash value’?

Answer 4

Cost of replacing damaged property with like kind and quality property in pre-damage condition.

Question 5

What are ‘Actual costs’?

Answer 5

Amounts determined based on costs incurred, excluding forecasted costs.

Question 6

Define ‘Actuarial accrued liability’.

Answer 6

Pension cost attributable to years prior to the current period in an actuarial valuation.

Question 7

What is an ‘Actuarial assumption’?

Answer 7

An estimate of future conditions affecting pension cost, such as mortality rates and employee turnover.

Question 8

What does ‘Allocate’ mean?

Answer 8

To assign an item or group of items of cost to one or more cost objectives.

Question 9

What is ‘Compensated personal absence’?

Answer 9

Absence from work for reasons like illness or vacation for which the employer pays compensation.

Question 10

Define ‘Defined-benefit pension plan’.

Answer 10

A pension plan where benefits are established in advance and contributions aim to provide those benefits.

Question 11

What is ‘Deferred compensation’?

Answer 11

An award made by an employer to compensate an employee in a future period for past services.

Question 12

True or False: ‘Expressly unallowable cost’ refers to costs that are specifically named as unallowable by law or contract.

Answer 12

True

Question 13

What is a ‘Fiscal year’?

Answer 13

The accounting period for which annual financial statements are regularly prepared, usually 12 months.

Question 14

Define ‘Home office’.

Answer 14

An office responsible for directing or managing multiple segments of an organization.

Question 15

What is ‘Immediate-gain actuarial cost method’?

Answer 15

An actuarial cost method where gains and losses are part of the unfunded actuarial liability of the pension plan.

Question 16

What does ‘Independent research and development (IR&D) cost’ include?

Answer 16

Costs of effort that are neither sponsored by a grant nor required in performing a contract, including:
* Basic research
* Applied research
* Development
* Systems and other concept formulation studies.

Question 17

What are ‘Indirect cost pools’?

Answer 17

Groupings of incurred costs identified with two or more cost objectives but not specifically with any final cost objective.

Question 18

Define ‘Intangible capital asset’.

Answer 18

An asset with no physical substance, more than minimal value, expected to be held for continued use.

Question 19

What is a ‘Job’ in cost accounting?

Answer 19

A homogeneous cluster of work tasks serving an enduring purpose for the organization.

Question 20

Fill in the blank: ‘Labor cost at standard’ is computed by multiplying _______ by labor-time standard.

Answer 20

[labor-rate standard]

Question 21

What does ‘Material cost at standard’ refer to?

Answer 21

A preestablished measure of material elements of cost computed by multiplying material-price standard by material-quantity standard.

Question 22

What is a ‘Nonqualified pension plan’?

Answer 22

Any pension plan other than a qualified pension plan as defined in this part.

Question 23

Define ‘Pay-as-you-go cost method’.

Answer 23

A method of recognizing pension cost only when benefits are paid to retired employees or beneficiaries.

Question 24

What is a ‘Pension plan’?

Answer 24

A deferred compensation plan established by employers to provide benefits to plan participants after retirement.

Question 25

What is the pay-as-you-go cost method?

Answer 25

A method of recognizing pension cost only when benefits are paid to retired employees or their beneficiaries. ## Footnote This method contrasts with accrual accounting, where costs are recognized when incurred, regardless of payment.

Question 26

Define pension plan.

Answer 26

A deferred compensation plan established and maintained by one or more employers to provide systematically for the payment of benefits to plan participants after their retirements. ## Footnote Benefits may include disability, death payments, and survivorship payments.

Question 27

Who is considered a pension plan participant?

Answer 27

Any employee or former employee of an employer or any member or former member of an employee organization eligible to receive a benefit from a pension plan. ## Footnote Active participants are those whose employment status has not been terminated.

Question 28

What is a profit center?

Answer 28

The smallest organizationally independent segment of a company charged by management with profit and loss responsibilities. ## Footnote This definition excludes subparts 31.3 and 31.6.

Question 29

What is the projected benefit cost method?

Answer 29

Any of the several actuarial cost methods that distribute the estimated total cost of all employees' prospective benefits over a period of years, or a modification of the accrued benefit cost method that considers projected compensation levels.

Question 30

What qualifies a pension plan as a qualified pension plan?

Answer 30

A pension plan that meets criteria set by the Internal Revenue Service for preferential tax treatment regarding contributions, investments, and distributions. ## Footnote Nonqualified pension plans do not meet these criteria.

Question 31

What is a self-insurance charge?

Answer 31

A cost that represents the projected average loss under a self-insurance plan.

Question 32

Define service life.

Answer 32

The period of usefulness of a tangible capital asset (or group of assets) to its current owner, expressed in units of time or output.

Question 33

What does the spread-gain actuarial cost method entail?

Answer 33

Any of the projected benefit actuarial cost methods under which actuarial gains and losses are included as part of the current and future normal costs of the pension plan.

Question 34

What is standard cost?

Answer 34

Any cost computed with the use of preestablished measures.

Question 35

What is a tangible capital asset?

Answer 35

An asset that has physical substance, more than minimal value, and is expected to be held by an enterprise for continued use or possession beyond the current accounting period.

Question 36

What is termination of employment gain or loss?

Answer 36

An actuarial gain or loss resulting from the difference between the assumed and actual rates at which pension plan participants separate from employment for reasons other than retirement, disability, or death.

Question 37

Define variance in accounting terms.

Answer 37

The difference between a preestablished measure and an actual measure.

Question 38

What is weighted average cost?

Answer 38

An inventory costing method where an average unit cost is computed by dividing the sum of beginning inventory and acquisitions by the total number of units.

Question 39

What is a welfare benefit fund?

Answer 39

A trust or organization that receives and accumulates assets for the payment of postretirement benefits or for purchasing such benefits.

Question 40

What is the purpose of subpart 31.1?

Answer 40

To describe the applicability of the cost principles and procedures in succeeding subparts to various types of contracts and subcontracts.

Question 41

What is the objective of the cost principles in subpart 31.101?

Answer 41

To ensure that similar organizations doing similar work follow the same cost principles and procedures.

Question 42

What is required for fixed-price contracts according to subpart 31.102?

Answer 42

The applicable subparts of part 31 must be used in pricing fixed-price contracts whenever cost analysis is performed or a fixed-price contract clause requires cost determination.

Question 43

What contracts does subpart 31.103 cover?

Answer 43

Contracts and contract modifications for supplies, services, or experimental, developmental, or research work negotiated with organizations other than educational institutions.

Question 44

What is the role of the contracting officer in contracts with educational institutions?

Answer 44

To incorporate the cost principles and procedures in subpart 31.3 by reference in cost-reimbursement contracts.

Question 45

What do construction and architect-engineer contracts include?

Answer 45

Contracts negotiated on the basis of cost with organizations for construction management or construction, alteration, or repair of real property.

Question 46

What are advance agreements as mentioned in 31.109?

Answer 46

Agreements that help determine the allowability of costs and avoid disputes based on unreasonableness, unallocability, or unallowability.

Question 47

True or False: Nonprofit organizations are not covered under subpart 31.108.

Answer 47

False ## Footnote Subpart 31.7 provides principles for determining costs applicable to contracts with nonprofit organizations.

Question 48

What are the three main criteria for determining the allowability of costs?

Answer 48

* Reasonableness * Allocability * Compliance with standards

Question 49

True or False: An advance agreement on costs is required for all costs under the specific cost principles.

Answer 49

False

Question 50

What must an advance agreement contain?

Answer 50

A statement of its applicability and duration

Question 51

Who is authorized to negotiate advance agreements?

Answer 51

The cognizant administrative contracting officer (ACO) or other contracting officer

Question 52

What is the responsibility of the contractor regarding cost accounting?

Answer 52

To account for costs appropriately and maintain adequate supporting documentation

Question 53

Fill in the blank: A cost is allocable if it is assignable or chargeable to one or more ______.

Answer 53

[cost objectives]

Question 54

What types of costs may require advance agreements?

Answer 54

* Compensation for personal services * Use charges for fully depreciated assets * Deferred maintenance costs * Precontract costs * Independent research and development costs

Question 55

What happens if unallowable costs are included in final indirect cost settlement proposals?

Answer 55

Penalties may be assessed

Question 56

What defines a reasonable cost?

Answer 56

Does not exceed what would be incurred by a prudent person in competitive business

Question 57

What is the definition of an allocable cost?

Answer 57

A cost that is assignable or chargeable based on relative benefits received

Question 58

True or False: The contracting officer can agree to treatment of costs inconsistent with the specific cost principles.

Answer 58

False

Question 59

What should be credited to the Government regarding allowable costs?

Answer 59

Income, rebate, allowance, or other credit relating to the allowable cost

Question 60

What must a contractor do if their accounting practices are inconsistent with the cost principles?

Answer 60

Costs resulting from such practices in excess of allowable amounts are unallowable

Question 61

What is required for costs that are mutually agreed to be unallowable?

Answer 61

They must be identified and excluded from any billing, claim, or proposal

Question 62

Fill in the blank: A cost is considered directly associated if it is generated solely as a result of incurring another ______.

Answer 62

[cost]

Question 63

What criteria must be met for statistical sampling methods to identify unallowable costs?

Answer 63

* Unbiased sample * Review of large dollar values * Audit verification permitted

Question 64

What is the significance of the term 'direct costs' in contract accounting?

Answer 64

Costs specifically identified with other final cost objectives are direct costs

Question 65

What is the purpose of the 31.109 regulation?

Answer 65

To outline the requirements for advance agreements on cost treatment

Question 66

List some examples of costs that may require advance agreements.

Answer 66

* Travel and relocation costs * Severance pay to employees * Professional services * Costs of public relations and advertising

Question 67

What are the consequences of not maintaining adequate records for claimed costs?

Answer 67

The contracting officer may disallow all or part of the claimed cost

Question 68

What is the role of the Government negotiator before negotiating an advance agreement?

Answer 68

Determine if other contracting offices have significant unliquidated dollar balances

Question 69

Fill in the blank: The total cost of a contract is the sum of direct and indirect costs plus any allocable ______.

Answer 69

[cost of money]

Question 70

What must be done if a directly associated cost is included in a cost pool with unallowable costs?

Answer 70

The directly associated cost shall remain in the cost pool

Question 71

What are indirect costs?

Answer 71

Indirect costs are those remaining to be allocated to intermediate or two or more final cost objectives after direct costs have been determined and charged directly to the contract or other work.

Question 72

True or False: No final cost objective shall have allocated to it as an indirect cost any cost if other costs incurred for the same purpose have been included as a direct cost.

Answer 72

True

Question 73

What must the contractor do to accumulate indirect costs?

Answer 73

The contractor shall accumulate indirect costs by logical cost groupings with due consideration of the reasons for incurring such costs.

Question 74

Fill in the blank: The base selected to allocate indirect costs should allocate the grouping on the basis of the _______.

Answer 74

[benefits accruing to intermediate and final cost objectives]

Question 75

What should be done if there is a significant change in the nature of the business when allocating indirect costs?

Answer 75

The method of allocating indirect costs may require revision.

Question 76

What is the base period for allocating indirect costs?

Answer 76

The cost accounting period during which such costs are incurred and accumulated for allocation to work performed in that period.

Question 77

For contracts subject to full or modified CAS coverage, what must the contractor follow for selecting the cost accounting periods?

Answer 77

The contractor shall follow the criteria and guidance in 48 CFR9904.406.

Question 78

What are allowable costs according to 31.204?

Answer 78

Costs are allowable to the extent they are reasonable, allocable, and determined to be allowable under 31.201, 31.202, 31.203, and 31.205.

Question 79

What types of subcontract costs are allowable as reimbursements or payments?

Answer 79

* Cost-reimbursement * Fixed-price incentive * Price redeterminable

Question 80

True or False: The determination of allowability is based on the principles and standards in 31.205.

Answer 80

True

Question 81

Define 'Public relations.'

Answer 81

Public relations means all functions and activities dedicated to maintaining, protecting, and enhancing the image of a concern or its products.

Question 82

What does 'Advertising' mean in the context of public relations?

Answer 82

Advertising means the use of media to promote the sale of products or services.

Question 83

What costs are included in public relations and advertising costs?

Answer 83

* Costs of media time and space * Purchased services performed by outside organizations * Applicable portion of salaries, travel, and fringe benefits of employees

Question 84

What are the allowable advertising costs?

Answer 84

* Specifically required by contract * Costs to promote sales of products sold to the U.S. Government * Allowable in accordance with 31.205-34

Question 85

What are unallowable public relations and advertising costs?

Answer 85

* Costs whose primary purpose is to promote the sale of products or services * Costs of trade shows not promoting export sales * Costs of ceremonies such as corporate celebrations

Question 86

What are bad debts according to 31.205-3?

Answer 86

Bad debts include actual or estimated losses arising from uncollectible accounts receivable due from customers and other claims.

Question 87

What are bonding costs?

Answer 87

Bonding costs arise when assurance against financial loss is required by the Government or the contractor.

Question 88

What bonding costs are allowable?

Answer 88

Costs of bonding required pursuant to the terms of the contract are allowable.