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Mayonayze

Value-add and TCI - Clarification Needed

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Please review the below examples and advise on how to correct:

Cost-type contract requires purchase of a hammer. Company A has a TCI CAS disclosure. Cost is as follows:

Cost of Hammer x (1 + M&H) = Subtotal

Subtotal x (1 + G&A) = Total cost of hammer

Company B has a similar contract requiring purchase of a hammer but has a Value-Add CAS disclosure. Cost is as follows:

Cost of Hammer x M&H = M&H base

Cost of Hammer x (1 + M&H) = subtotal 1

M&H base x (1 + G&A) = subtotal 2

Subtotal 1 + Subtotal 2 = Total cost of hammer

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What is the question?

I did the math, using $100 as Cost of Hammer, 40% as M&H, and 50% as G&A. For company A, the Total Cost of Hammer comes out as $210. For Company B, it comes out as $200. Is there a problem?

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I'm not sure what you are referring to for M&H. I am only familiar with a material handling rate which is an indirect cost rate that relates to the acquisition of material such as ordering, receipt, inspection and storage.

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Mayonaze,

Let's assume the hammer is treated as an ODC, not Direct Material. Also, no FCCOM is applied.

TCI Example with no Material & Handling burden:

Cost of Hammer = Cost of Hammer

Cost of Hammer + applied G&A = Total Cost of Hammer before Profit

TCI Example with Material & Handling burden applied to Direct Material:

Cost of Hammer = Cost of Hammer

Cost of Hammer + applied G&A = Total Cost of Hammer before Profit

VAB Example with no Material & Handling burden:

Cost of Hammer = Cost of Hammer

Cost of Hammer = Cost of Hammer before Profit

VAB Example with Material & Handling burden applied to Direct Material:

Cost of Hammer = Cost of Hammer

Cost of Hammer = Cost of Hammer before Profit

What point are you trying to make?

Hope this helps.

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Please review the below examples and advise on how to correct:

Is your concern that G&A is only applied to material handling by Company B? Provided the company discloses that its value-added base includes material handling (but not direct material), there should not be a problem with the above accounting.

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INoF --

By definition, any Value-Added G&A Expense Pool allocation base must include the material handling indirect cost pool, if there is one. You cannot exclude it. CAS 410 noncompliance right there.

H2H

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INoF --

By definition, any Value-Added G&A Expense Pool allocation base must include the material handling indirect cost pool, if there is one. You cannot exclude it. CAS 410 noncompliance right there.

H2H

Thank You, H2H.

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H2H, in your post 4 example, wouldn't you exclude the material cost of the hammer from the VAB, but leave the other cost of the hammer (e.g., labor, overhead and fringe benefits) in the base?

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Retreadfed,

If there are other costs associated with the hammer, the original poster did not specify what they might be.

H2H

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Sorry for the late reply, Team!

In my simple example, there are no other costs to consider other than the hammer as a material line-item. G&A for HR,Finance, BD, and similar. M&H for the procure-to-pay resources.

The general observation is that the hammer (itself) does not benefit from Payroll, Benefits, Capture Support, and other G&A allocation, so its cost is neither absorbed into that base nor is G&A allocated to it in a cost build-up; under the VA construct. However, the labor resources in the M&H procure-to-pay pool do benefit from the G&A allocation and so they are absorbed into the G&A base and hit with the allocation in the cost build-up for the hammer. The hammer does benefit from procure-to-pay in M&H so its cost is absorbed into that base and allocated the rate in the cost build up.

Conversely, in the TCI example, the base cost of the hammer is absorbed into the G&A allocation and assessed G&A in the calculation of the cost build-up for the hammer. Hammer will receive a paycheck and benefits this week :)

The ask in my original post was to make sure that these concepts were sound and not in direct offense of CAS guidelines. Sorry for any confusion, or if the example is oversimplified and therefore not demonstrative of the fundamental compliance baselines for each type of disclosure.

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Mayo,

Got it. Just to clarify, NO COST OBJECTIVE has a direct beneficial relationship with G&A expenses. G&A is a FAR 31.201-4( c) allocation.

H2H

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