CDFM Budget and Cost Analysis 5 — Questions and Answers
Question 1: Which cost element is classified as a direct cost in government contract cost accounting?
- Corporate headquarters administrative salaries
- Engineering labor hours billed exclusively to one contract (Correct answer)
- Facility lease costs shared across multiple contracts
- Company-wide IT infrastructure costs
Correct answer: Engineering labor hours billed exclusively to one contract
A direct cost is any cost that can be specifically identified with a single cost objective (contract); labor hours billed exclusively to one contract are the classic example.
Question 2: What is the primary function of the Defense Contract Audit Agency (DCAA) in relation to cost analysis?
- To negotiate contract prices on behalf of the contracting officer
- To audit contractor cost representations and accounting systems for adequacy and compliance (Correct answer)
- To set the allowable profit rates on cost-reimbursable contracts
- To approve cost estimating methodologies used by DoD program offices
Correct answer: To audit contractor cost representations and accounting systems for adequacy and compliance
DCAA audits contractor accounting systems, incurred cost submissions, and cost proposals to ensure compliance with FAR/DFARS and to provide objective cost data to contracting officers.
Question 3: Under Cost Accounting Standard (CAS) 410, what must contractors do with G&A expenses?
- Charge them directly to contracts in proportion to direct labor hours
- Allocate them to cost objectives using a base that represents the total activity of the business unit (Correct answer)
- Treat them as unallowable under FAR Part 31 unless specifically authorized
- Pool them with overhead and allocate using a single plantwide rate
Correct answer: Allocate them to cost objectives using a base that represents the total activity of the business unit
CAS 410 requires G&A expenses to be allocated using a base that represents the total business activity of the business unit, most commonly a total cost input base.
Question 4: What does 'then-year dollars' (TY$) mean in a DoD cost estimate?
- Dollars expressed in the current fiscal year's purchasing power without inflation adjustment
- Dollars that include inflation projected to the actual year of expenditure (Correct answer)
- Dollars expressed in the base year of the program's initial cost estimate
- Dollars adjusted for foreign currency exchange rates
Correct answer: Dollars that include inflation projected to the actual year of expenditure
Then-year (or current) dollars include inflation escalation to the year in which costs will actually be incurred, reflecting the actual dollars that will need to be appropriated and spent.
Question 5: In DoD budget formulation, what is the role of a Program Element (PE) number?
- It identifies the specific contract line item within a procurement action
- It is the DoD accounting code that links resources to a specific program or mission area in the FYDP (Correct answer)
- It designates the congressional subcommittee responsible for authorizing the program
- It identifies the Treasury account symbol for a specific appropriation
Correct answer: It is the DoD accounting code that links resources to a specific program or mission area in the FYDP
A Program Element (PE) is the basic building block of the DoD program structure, uniquely identifying a specific program, mission, or activity within the FYDP and linking funding to purpose.
Question 6: When analyzing a contract using the Estimate at Completion (EAC) formula EAC = ACWP + (BAC - BCWP) / CPI, what assumption is being made?
- Future work will be accomplished at the planned (budgeted) rate
- The remaining work will be completed at the same efficiency rate experienced to date (Correct answer)
- The overrun experienced so far will not recur in the remaining work
- The schedule variance will recover to zero by contract completion
Correct answer: The remaining work will be completed at the same efficiency rate experienced to date
Dividing remaining work by the CPI assumes that the cost efficiency (or inefficiency) experienced so far will continue for the remainder of the program — the most statistically reliable EAC formula.
Question 7: Which DoD instruction governs the financial management regulations (FMR) that provide comprehensive guidance on all aspects of financial management for DoD components?
- DoD Instruction 5000.02 (Operation of the Adaptive Acquisition Framework)
- DoD 7000.14-R (Department of Defense Financial Management Regulation) (Correct answer)
- OMB Circular A-11 (Preparation, Submission, and Execution of the Budget)
- DFARS Part 215 (Contracting by Negotiation)
Correct answer: DoD 7000.14-R (Department of Defense Financial Management Regulation)
DoD 7000.14-R, the DoD Financial Management Regulation (FMR), is the comprehensive regulation governing budgeting, accounting, finance, and financial management policy for all DoD components.
CDFM Budget and Cost Analysis 5
Which cost element is classified as a direct cost in government contract cost accounting?