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Suggest you review DCAA Contract Audit Manual, Chapter 8, regarding CAS 410. Look for the Q&A.

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2 hours ago, larry1702 said:

Thank you, that was very helpful in determining it should definitely be included in Company B's base. I'm not clear if it also should be included in Company A's base. 

Quote

a. Problem. Division X excludes from its total cost input base, the cost of intercompany transfers from Division Y.

Solution. The intent of the standard is that all actions, which represent the total productive activity of the segment, should be included in total cost input. The costs of the intercompany transfers should therefore be included in the total cost input base used to allocate G&A expenses. Division X's exclusion of the intracompany transfers from the base does not comply with the standard.

The work performed by Company A for Company B should also be fully burdened, because it is a productive activity of Company A. When Company B receives the fully burdened transaction, it should include that amount in its TCI base, just as if Company A were a subcontractor. That is DCAA's position.

While I tend to agree with DCAA with respect to Company A, I tend to think the rationale for Company B's inclusion of the costs in its TCI base  (Division X in the Q&A quoted above) is a bit thin. It is based on conclusions from the same DOD CAS Working Group paper that the ASBCA said was flawed in its Ford Aeronutronics CAS 410 decision. That said, I believe I've accurately represented DCAA's position on the matter. If you include the original transaction in the TCI base of Company A and the fully burdened transaction in the TCI base of Company B, you should not have any audit findings from DCAA.

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16 minutes ago, here_2_help said:

The work performed by Company A for Company B should also be fully burdened, because it is a productive activity of Company A. When Company B receives the fully burdened transaction, it should include that amount in its TCI base, just as if Company A were a subcontractor. That is DCAA's position.

While I tend to agree with DCAA with respect to Company A, I tend to think the rationale for Company B's inclusion of the costs in its TCI base  (Division X in the Q&A quoted above) is a bit thin. It is based on conclusions from the same DOD CAS Working Group paper that the ASBCA said was flawed in its Ford Aeronutronics CAS 410 decision. That said, I believe I've accurately represented DCAA's position on the matter. If you include the original transaction in the TCI base of Company A and the fully burdened transaction in the TCI base of Company B, you should not have any audit findings from DCAA.

The costs are included in the TCI base for both Company G&A bases, I’m just wondering if it needs to be eliminated from Company A for purposes of allocating a shared service center. 

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larry1702, you have said that your shared service center allocates to business units based on their respective TCI values. DCAA asserts that intercompany work should be included in a TCI base, both in the performing and responsible entities. I'm fairly confident that your question "should I modify my allocation cost accounting practice to eliminate the intercompany work from one business unit's TCI values when allocating shared service center costs?" answers itself based on the DCAA position.

If you still believe there is an open question on the matter, I suggest you revise your Disclosure Statement (or equivalent policy/procedure) to reflect a changed allocation base, calculate the cost impact to all business units' allocations, and submit the package to your auditors to see what DCAA says about it. If the impact is immaterial, you can probably do whatever you'd like.

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larry1102 has deleted his OP and follow-up. I hope I didn't upset him.

Bob can decide whether or not to delete the entire thread.

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