FAR Part 31 Deck 2 (Contract Cost Principles and Procedures) Flashcards
(99 cards)
1
Q
What is the general criterion for compensation for personal services?
A
Compensation must be for work performed in the current year and not represent a retroactive adjustment of prior years’ salaries or wages.
2
Q
What must the total compensation for individual employees be based on?
A
It must be reasonable for the work performed.
3
Q
What must compensation conform to?
A
The terms and conditions of the contractor’s established compensation plan or practice.
4
Q
What happens if a contractor introduces major revisions to compensation plans?
A
No presumption of allowability will exist unless the cognizant ACO has been given an opportunity to review the changes.
5
Q
Are costs unallowable under other paragraphs of this subpart allowable under this subsection?
A
No, they are not allowable solely on the basis that they constitute compensation for personal services.
6
Q
Who requires special consideration regarding compensation?
A
Owners of closely held corporations, members of limited liability companies, partners, sole proprietors, and their immediate families.
7
Q
What must compensation for certain individuals be?
A
Reasonable for the personal services rendered and not a distribution of profits.
8
Q
What must compensation costs established under labor-management agreements be considered?
A
They are reasonable unless unwarranted by work circumstances or discriminatory against the Government.
9
Q
What factors may be relevant in determining the reasonableness of total compensation?
A
- Conformity with compensation practices of other firms of the same size * In the same industry * In the same geographic area * Engaged in similar non-Government work
10
Q
What forms can compensation for personal services take?
A
- Cash * Corporate securities * Other assets, products, or services
11
Q
When is differential pay for additional income taxes allowable?
A
For foreign assignments.
12
Q
Are differential allowances for additional income taxes from domestic assignments allowable?
A
No, they are unallowable.
13
Q
What conditions must bonuses and incentive compensation meet to be allowable?
A
- Awards must be paid or accrued under a good faith agreement before services are rendered * Basis for the award must be supported
14
Q
What is severance pay?
A
A payment in addition to regular salaries and wages for workers whose employment is being involuntarily terminated.
15
Q
Under what conditions is severance pay allowable?
A
- Required by law * Employer-employee agreement * Established policy constituting an implied agreement * Circumstances of employment
16
Q
What is backpay?
A
A retroactive adjustment of prior years’ salaries or wages.
17
Q
What payments are allowable under backpay provisions?
A
- Payments to employees resulting from underpaid work * Payments to union employees for wage rate differences during negotiations * Payments to nonunion employees based on union agreements under certain conditions
18
Q
Is compensation based on changes in corporate securities prices allowable?
A
No, it is unallowable.
19
Q
What are the two types of pension plans mentioned?
A
- Defined-benefit plans * Defined-contribution plans
20
Q
Pension costs are allowable subject to which standards?
A
Compliance with 48 CFR9904.412 and 48 CFR9904.413.
21
Q
When must pension costs be funded to be allowable in the current year?
A
By the time set for filing the Federal income tax return or any extension.
22
Q
What must pension payments be based on to be allowable?
A
An agreement entered into in good faith before work is performed.
23
Q
What happens to pension costs assigned to the current accounting period but not funded?
A
They are not allowable in subsequent years.
24
Q
What is the impact of increased pension costs due to delays in funding?
A
They are unallowable if caused by delays beyond 30 days after each quarter.
25
What must the contractor demonstrate regarding the allowability of indemnification payments to the Pension Benefit Guaranty Corporation?
The payments must be allocable to Government work.
26
What is the extent of the Government's participation in indemnification payments?
The Government will participate in the indemnification payment to the extent of its fair share despite certain requirements.
27
When are increased pension costs allowable?
Increased pension costs are unallowable except when authorized by an advance agreement.
28
What must an advance agreement state regarding pension costs?
It must state the Government's equitable share in the gross amount withdrawn or transferred and provide a credit equal to that share.
29
What is the method for measuring pension adjustments for segment closings?
The amount shall be measured, assigned, and allocated in accordance with 48 CFR9904.413-50(c)(12).
30
What happens when assets revert to the contractor?
The contractor shall make a refund or credit to the Government for its equitable share of the gross amount withdrawn.
31
What types of plans are included under defined-contribution pension plans?
Profit sharing, savings plans, and other plans within the definition of a pension plan at 31.001.
32
What is the allowable pension cost for defined-contribution plans?
Limited to the net contribution required for a cost accounting period after accounting for dividends and credits.
33
What are the cost accounting requirements for pension plans using the pay-as-you-go method?
Costs must be measured, assigned, and allocated according to 48 CFR9904.412 and 9904.413.
34
What are early retirement incentives?
Incentives given to employees to retire early, allowable under certain pension cost criteria.
35
What are the conditions under which early retirement incentives are allowable?
* Measured and assigned according to accounting practices * In accordance with plan terms * Only applied to active employees.
36
What are the limitations on deferred compensation awards?
Costs must be measured in accordance with 48 CFR 9904.415 and are unallowable if awarded after the work period.
37
What types of costs are unallowable due to changes in management control?
* Payments to employees under special compensation agreements * Payments contingent on remaining with the contractor.
38
What constitutes fringe benefits?
Allowances and services provided in addition to regular wages, including vacations, sick leave, and insurance.
39
What portion of company-furnished automobile costs is unallowable?
Costs related to personal use by employees.
40
Are employee rebate and purchase discount plans allowable?
No, they are unallowable.
41
What are postretirement benefits (PRB)?
Benefits provided after retirement, excluding cash and life insurance benefits from pension plans.
42
What are the allowable methods for incurring PRB costs?
* Pay-as-you-go * Terminal funding * Accrual basis.
43
What is required for PRB costs to be allowable?
Must be funded by the time set for filing Federal income tax returns or paid to a provider by that time.
44
What is the limitation on allowability of compensation based on contract award date?
Different limits apply based on the contract award date and the applicable agency.
45
Define 'compensation' as used in this context.
Total wages, salary, bonuses, deferred compensation, and employer contributions to pension plans.
46
Who qualifies as a 'senior executive'?
Top management positions as defined, including CEO and highest compensated employees.
47
What is a fiscal year?
The fiscal year established by the contractor for accounting purposes.
48
What does 'fiscal year' mean?
The fiscal year established by the contractor for accounting purposes
49
Define 'contractor's headquarters.'
The highest organizational level from which executive compensation costs are allocated to Government contracts
50
What is the applicability of the senior executive compensation limit for contracts awarded before June 24, 2014?
Applies to all executive agencies, other than DoD, NASA, and the Coast Guard, for contracts awarded before June 24, 2014; and to DoD, NASA, and the Coast Guard for contracts awarded before December 31, 2011
51
Are costs incurred after January 1, 1998, for the compensation of a senior executive in excess of the benchmark compensation amount unallowable?
Yes, they are unallowable for contracts awarded before June 24, 2014
52
What is the definition of 'contingency'?
A possible future event or condition arising from presently known or unknown causes, the outcome of which is indeterminable at the present time
53
Are costs for contingencies generally allowable for historical costing purposes?
No, they are generally unallowable
54
What are the two categories of contingencies in connection with estimates of future costs?
* Presently known and existing conditions
* Presently known or unknown conditions
55
Are contributions or donations allowable under cost principles?
No, they are unallowable except as provided in 31.205-1(e)(3)
56
What is 'cost of money'?
An imputed cost that is not a form of interest on borrowings
57
What are the conditions under which cost of money is allowable?
* Measured, assigned, and allocated to contracts in accordance with 48 CFR 9904.414
* Follow requirements of 31.205-52
* Estimated facilities capital cost of money is specifically identified and proposed
58
What is the allowable depreciation on a contractor's plant, equipment, and other capital facilities subject to?
The limitations contained in the cost principle
59
What is the threshold for estimated residual values used in depreciation for tangible personal property?
Only estimated residual values that exceed 10 percent of the capitalized cost of the asset need be used
60
What does 'economic planning costs' refer to?
Costs of general long-range management planning concerning the future overall development of the contractor's business
61
Are economic planning costs allowable?
Yes, they are allowable
62
What is the limitation on contributions by the contractor to an Employee Stock Ownership Trust (ESOT)?
Contributions that exceed the deductibility limits of the Internal Revenue Code for that year are unallowable
63
Fill in the blank: The five most highly compensated employees in management positions at each home office must be reported _______.
[whether or not the home office or segment reports directly to the contractor's headquarters]
64
True or False: Costs incurred after January 1, 2012, for the compensation of any contractor employee in excess of the benchmark compensation amount are unallowable.
True
65
What are economic planning costs?
Costs concerned with the future overall development of the contractor's business, considering economic dislocations or market alterations
## Footnote
Economic planning costs are allowable but do not include organization or reorganization costs.
66
What types of activities are included in allowable employee morale, health, and welfare costs?
Activities designed to improve working conditions, employer-employee relations, employee morale, and employee performance, such as:
* House publications
* Health clinics
* Wellness/fitness centers
* Employee counseling services
* Food and dormitory services
67
Are costs of gifts allowable?
No, costs of gifts are unallowable
## Footnote
Awards for performance or employee achievements are exceptions.
68
What are the conditions under which food and dormitory losses are allowable?
Losses are allowable if the contractor's objective is to operate such services on a break-even basis, and unusual circumstances exist
## Footnote
Examples of unusual circumstances include remote locations or excessive labor costs.
69
Are entertainment costs allowable?
No, costs of amusement, diversions, social activities, and associated costs are unallowable.
70
What types of costs are unallowable under fines, penalties, and mischarging costs?
Costs of fines and penalties from legal violations and costs related to mischarging on Government contracts
## Footnote
Exceptions exist for compliance with contract terms or instructions from the contracting officer.
71
How are gains and losses from the disposition of depreciable property treated?
They are included as credits or charges to the cost groupings in which the depreciation was included.
72
What defines idle facilities and idle capacity costs?
Idle facilities are completely unused facilities, while idle capacity refers to the unused capacity of partially used facilities.
73
Under what conditions are costs of idle facilities allowable?
Costs are allowable if the facilities are necessary to meet workload fluctuations or were necessary when acquired
## Footnote
Allowable for a reasonable period, typically not exceeding 1 year.
74
What are independent research and development (IR&D) costs?
Costs related to projects in basic research, applied research, development, and systems/concept formulation studies
## Footnote
Does not include costs sponsored by a grant or required in contract performance.
75
What are bid and proposal (B&P) costs?
Costs incurred in preparing, submitting, and supporting bids and proposals for potential contracts.
76
What is the definition of applied research?
Efforts that follow basic research and aim to exploit scientific discoveries or improvements in technology
## Footnote
Excludes design or development efforts for specific items.
77
What are the requirements for fully-CAS-covered contracts regarding IR&D and B&P costs?
They are subject to all requirements of 48 CFR 9904.420.
78
What must be demonstrated for contributions to employee organizations to be allowable?
An equivalent amount of costs incurred by the employee organization must be allowable if directly incurred by the contractor.
79
What does the term 'development' refer to in the context of IR&D?
Systematic use of scientific and technical knowledge in designing, developing, testing, or evaluating a potential new product or service.
80
Are costs for recreation generally allowable?
No, except for participation in company-sponsored sports teams or organizations designed to improve loyalty or fitness.
81
What is the allowable portion of a loss on depreciable property when it is leased?
Limited to the difference between the fair market value and the undepreciated balance of the asset on the date the contractor becomes a lessee.
82
What is the treatment for gains and losses on the disposition of capital assets other than depreciable property?
They are excluded in computing contract costs.
83
What defines 'idle capacity'?
The unused capacity of partially used facilities, calculated based on potential versus actual usage.
84
What are costs of idle capacity considered to be?
Costs of doing business and are allowable if the capacity is necessary.
85
What are the conditions under which IR&D and B&P costs are allowable as indirect expenses?
Costs are allowable if they are allocable and reasonable
## Footnote
Allowability is subject to specific agency regulations and conditions outlined in the text.
86
What must be identified for deferred IR&D costs to be considered allowable?
The total amount of IR&D costs applicable to the product must be identified
## Footnote
Other conditions include reasonable proration to sales and no allocation to Government contracts for current IR&D programs.
87
What is a requirement for recognizing deferred IR&D costs in a contract?
The contract must include a specific provision setting forth the amount of deferred IR&D costs allocable to the contract
## Footnote
This applies unless the contract is firm-fixed-price or fixed-price with economic price adjustment.
88
What types of arrangements can lead to allowable IR&D costs?
Joint ventures, limited partnerships, teaming arrangements, and collaboration agreements
## Footnote
Costs incurred under cooperative research and development agreements may also be considered allowable.
89
True or False: Self-insurance charges are always allowable regardless of circumstances.
False
## Footnote
Self-insurance charges are subject to specific limitations and must comply with applicable regulations.
90
What must a contractor do to allocate self-insurance costs?
Measure, assign, and allocate costs in accordance with 48 CFR 9904.416
## Footnote
This ensures compliance with accounting standards for insurance costs.
91
Under what circumstances are purchased insurance costs allowable?
Costs are allowable if they comply with contract terms and associated limitations
## Footnote
These limitations include reasonable rates and premiums and exclusion of profit coverage.
92
What is unallowable regarding self-insurance for catastrophic losses?
Self-insurance charges for risks of catastrophic losses are unallowable
## Footnote
This aligns with the guidelines set forth by the government.
93
Fill in the blank: Costs of insurance for the risk of loss of Government property are allowable if the contractor is _______.
liable for such loss
## Footnote
Additional conditions include that the contracting officer has not revoked the Government's assumption of risk.
94
What type of insurance costs are unallowable according to the text?
Insurance costs to protect against correcting defects in materials and workmanship
## Footnote
However, costs covering fortuitous or casualty losses from defects are allowable.
95
What must be demonstrated for a captive insurer's charges to be considered purchased insurance?
The charge must be based on competitive market forces
## Footnote
This applies if the captive insurer also sells insurance to the general public.
96
What are the allowable costs of insurance maintained by the contractor?
Costs must follow sound business practice and rates must be reasonable
## Footnote
Coverage types and extent should align with general business conduct.
97
What is a limitation for costs of insurance on the lives of employees?
Allowable only to the extent that the insurance represents additional compensation
## Footnote
This is in accordance with the guidelines on compensation.
98
What conditions make actual losses unallowable?
Unless expressly provided for in the contract
## Footnote
Minor losses may be allowable under specific conditions.
99
What is a key requirement for costs incurred in preparing cooperative arrangements?
Costs must be allocable, reasonable, and not otherwise unallowable
## Footnote
This includes costs related to submitting and supporting offers.
