CDFM Budget and Cost Analysis 3 — Questions and Answers
Question 1: What is the 'bona fide needs' rule as it applies to appropriations?
- An obligation must benefit a genuine need of the period for which the appropriation was made (Correct answer)
- Funds must be obligated only for items listed in the Congressional justification
- Contracts must be competitively bid to ensure legitimate government need is met
- Budget requests must be supported by documented operational requirements
Correct answer: An obligation must benefit a genuine need of the period for which the appropriation was made
The bona fide needs rule (31 U.S.C. § 1502) requires that appropriated funds only be obligated for genuine needs that arise during the period of availability of that appropriation.
Question 2: In DoD cost analysis, 'wrap rate' most commonly refers to:
- The overhead rate applied to a contractor's direct labor costs (Correct answer)
- The annual inflation factor applied to base-year dollars
- The ratio of total contract value to direct material costs
- The fee percentage added to cost-reimbursable contracts
Correct answer: The overhead rate applied to a contractor's direct labor costs
A wrap rate is the composite rate that multiplies a contractor's direct labor cost to include overhead, fringe benefits, G&A, and fee, giving the fully loaded labor cost.
Question 3: Which document formally establishes the baseline cost, schedule, and technical performance parameters for a major defense acquisition program?
- Acquisition Program Baseline (APB) (Correct answer)
- Selected Acquisition Report (SAR)
- Defense Acquisition Executive Summary (DAES)
- Test and Evaluation Master Plan (TEMP)
Correct answer: Acquisition Program Baseline (APB)
The Acquisition Program Baseline (APB) documents the threshold and objective values for cost, schedule, and performance that define program success and trigger reporting requirements if breached.
Question 4: What does a Cost Performance Index (CPI) value of 0.85 indicate in an EVM report?
- The project is 85% complete
- For every dollar spent, only $0.85 of planned work has been accomplished (Correct answer)
- The project is 15% ahead of the cost baseline
- The contractor's profit margin is 15% below the negotiated fee
Correct answer: For every dollar spent, only $0.85 of planned work has been accomplished
CPI = BCWP ÷ ACWP; a CPI of 0.85 means the project is getting only 85 cents of earned value for every dollar actually spent, indicating a cost overrun.
Question 5: Under the Antideficiency Act (31 U.S.C. § 1341), which action is prohibited?
- Transferring funds between programs without prior OSD approval
- Obligating funds in excess of amounts available in an appropriation (Correct answer)
- Requesting a supplemental appropriation after a Continuing Resolution is enacted
- Reprogramming funds between Budget Activities without congressional notification
Correct answer: Obligating funds in excess of amounts available in an appropriation
The Antideficiency Act prohibits obligating or expending funds in excess of amounts available in an appropriation or in advance of an appropriation, with criminal and administrative penalties.
Question 6: In DoD budgeting, 'color of money' refers to:
- The classification level of a classified program's funding line
- The restrictions on how specific appropriation categories can be spent (Correct answer)
- The Treasury account symbol color-coded in GFEBS
- The percent of funds authorized versus appropriated
Correct answer: The restrictions on how specific appropriation categories can be spent
Color of money is the informal term for appropriation type restrictions — funds appropriated for Research and Development cannot legally be spent on Operations and Maintenance activities.
Question 7: What is the primary purpose of the Independent Cost Estimate (ICE) required for major defense programs?
- To validate the contractor's proposed cost as fair and reasonable
- To provide an unbiased cost estimate that is not influenced by the program office (Correct answer)
- To calculate the Should Cost target for contract negotiations
- To fulfill the statutory requirement for a Cost Benefit Analysis under OMB A-94
Correct answer: To provide an unbiased cost estimate that is not influenced by the program office
An ICE, produced by an independent organization such as CAPE or a Service cost agency, provides an objective check on program office estimates to improve the accuracy of budget submissions.
CDFM Budget and Cost Analysis 3
What is the 'bona fide needs' rule as it applies to appropriations?