Jump to content
The Wifcon Forums and Blogs

Recommended Posts

The sales people (business development representatives) have compensation plans that include commissions as a percentage of bookings.

I believe those are properly accounted for as direct costs, easily passing the "but for" test.  They are currently part of G&A, and my attempts at telling the owner and the BD people that the costs should be accounted for as direct costs are met with a chorus of objections from the BD people.  The owner typically gives  them what they want, and their several voices outshout me.

A.  Is my interpretation correct, these should be accounted for a direct costs?

B.  Assuming yes to A., what arguments are likely to persuade the owner?

C.(1)  I was once advised to be more aggressive in pursuing my ideas.  I am considering more aggressive options and following that advice. 

C.(2)  Salespeople tell me that a customer won't buy unless he feels pain.  In this case, effectively the owner is they customer, and he won't change unless he feels pain.

C.(3)  Assuming my interpretation is correct, what is the best way to make him feel enough pain to change?

 

Share this post


Link to post
Share on other sites

If you are going to charge as a direct cost, will the commissions be included in cost proposals? If so, what will the BOE be? Will the commissions be burdened? If so, how? Will you add profit to the burdened costs? Do you think the customer(s) will be okay paying for sales commissions + burden + profit?

Share this post


Link to post
Share on other sites
35 minutes ago, kevlar51 said:

Do you have a disclosure statement that identifies these costs as G&A?

Great point. Changing compensation practices by making sales commissions direct versus indirect (G&A) might well be viewed as a change in cost accounting practice.

Share this post


Link to post
Share on other sites
19 hours ago, lotus said:

I believe those are properly accounted for as direct costs, easily passing the "but for" test.  They are currently part of G&A

What is the benefit, from your perspective, of accounting them as direct costs instead of G&A?

Share this post


Link to post
Share on other sites

At the risk of giving lotus more help that s/he was looking for .... there is no "but for" test for direct charge allocations. The "but for" test is used for identifying directly associated unallowable costs.

Share this post


Link to post
Share on other sites

To answer questions: 

   It is a small company without a CAS disclosure statement.  (Although the owner dreams of becoming a big company.

    Other than travel and ODCs on predominately FFP contracts and minimal Materials on T&M contracts there is no cost type work.

    Whether the commission costs would be proposed as direct costs or included as direct costs in a cost estimation used to help determine a FFP price or T&M labor rates, I can only presume yes.

    The benefits are 

1.  The G&A rate is reduced.  (The BD people & owner are saying the G&A rate is too high.)

2.  Costs would be better matched to the causal relationship.  Ditto for profits.  (There are some legacy contracts that are not part of any sales reps book of contracts so no commission is paid when those receive additional bookings, but G&A including commissions, is allocated to them.

 

Share this post


Link to post
Share on other sites
On ‎9‎/‎14‎/‎2017 at 12:55 PM, lotus said:

Is my interpretation correct, these should be accounted for a direct costs?

There is no right or wrong answer. The company chooses its cost accounting practices and then follows them.

I will add that, according to CAS 410, G&A expenses are those that benefit the business as a whole. Any expense that does not meet that test likely should not be part of the G&A expense pool. On the other hand, CAS gives contractors a pass for immaterial costs that are included in the pool.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×