CFCM Cost Accounting Standards (CAS) — Questions and Answers
Question 1: Under the Cost Accounting Standards (CAS), 'modified CAS coverage' applies to a negotiated contract or subcontract when the award value is:
- At least $750,000 but less than $2 million
- At least $2 million but less than $50 million (Correct answer)
- $50 million or more
- Any value if the contractor received $50 million in CAS-covered awards in the prior year
Correct answer: At least $2 million but less than $50 million
Modified CAS coverage applies to contracts/subcontracts with a value of at least $2 million but less than $50 million (unless full coverage applies due to the contractor's prior-year CAS-covered awards). Modified coverage requires compliance with CAS 401, 402, 405, and 406 only.
Question 2: Which of the following contractors is EXEMPT from Cost Accounting Standards (CAS) requirements?
- A large defense prime contractor with $300 million in annual government sales
- A small business concern as defined under the Small Business Act (Correct answer)
- A non-profit research university with $60 million in federal grants
- A foreign subsidiary of a U.S. parent company with CAS-covered contracts
Correct answer: A small business concern as defined under the Small Business Act
Small business concerns are explicitly exempt from CAS requirements under 48 CFR 9903.201-1. This exemption recognizes that the administrative burden of CAS compliance would be disproportionate for small businesses. Other exemptions include contracts below the CAS threshold and firm-fixed-price contracts awarded based on adequate price competition.
Question 3: A contractor is required to file a CAS Disclosure Statement (CASB DS-1) when it receives a CAS-covered award and:
- The award is $50 million or more, or it received $50 million or more in net CAS-covered awards in the prior cost accounting period (Correct answer)
- Any single contract exceeds $2 million in value
- The contractor has more than 1,000 employees
- The contract is a cost-plus-fixed-fee type regardless of value
Correct answer: The award is $50 million or more, or it received $50 million or more in net CAS-covered awards in the prior cost accounting period
A Disclosure Statement is required when a contractor receives a single CAS-covered award of $50 million or more, or when it received $50 million or more in net CAS-covered awards during the immediately preceding cost accounting period. The Disclosure Statement documents the contractor's cost accounting practices.
Question 4: When a contractor makes a voluntary change in its cost accounting practice on a CAS-covered contract, what is the contractor required to submit to the government?
- A request for equitable adjustment (REA) to recover increased costs
- A cost impact proposal showing the estimated increase or decrease in cost to the government (Correct answer)
- A revised Disclosure Statement only, with no financial analysis required
- Written notification within 15 days followed by a cure notice response
Correct answer: A cost impact proposal showing the estimated increase or decrease in cost to the government
Under CAS 9903.202-3, when a contractor makes a change in cost accounting practice, it must submit a cost impact proposal to the contracting officer. This proposal shows the estimated increase or decrease in costs for each affected CAS-covered contract. If the change increases costs, the government may require the contractor to absorb them; if it decreases costs, the government benefits.
Question 5: CAS Standard 418 (Allocation of Direct and Indirect Costs) primarily addresses which accounting issue?
- The proper classification and allocation of costs as either direct or indirect, and the consistent application of those classifications (Correct answer)
- The measurement of pension costs for defined benefit plans
- The accounting treatment of independent research and development expenses
- The allocation of home office expenses to business segments
Correct answer: The proper classification and allocation of costs as either direct or indirect, and the consistent application of those classifications
CAS 418 requires that costs identified specifically with a contract be charged directly to that contract, while costs that benefit multiple contracts must be allocated as indirect costs. The standard ensures consistency in how costs are classified across periods and contracts, preventing contractors from shifting costs between direct and indirect pools to maximize reimbursement.
Question 6: The primary objective of the Cost Accounting Standards (CAS) is to:
- Reduce the total dollar amount of government contract costs
- Achieve uniformity and consistency in cost accounting practices so the government can better measure, assign, and allocate costs on negotiated contracts (Correct answer)
- Eliminate the need for DCAA audits on cost-reimbursement contracts
- Standardize profit rates across all federal cost-type contracts
Correct answer: Achieve uniformity and consistency in cost accounting practices so the government can better measure, assign, and allocate costs on negotiated contracts
CAS was established to achieve consistency and comparability in cost accounting practices so the government can effectively evaluate proposed costs, determine allowable costs, and compare contractor accounting practices over time and across contractors. It does not dictate profit, eliminate audits, or reduce costs per se.
CFCM Cost Accounting Standards (CAS)
Under the Cost Accounting Standards (CAS), 'modified CAS coverage' applies to a negotiated contract or subcontract when the award value is: