CPCM Cost and Price Analysis 2 — Questions and Answers
Question 1: Which profit/fee negotiation objective tool does DCAA use to assess contractor risk and effort when determining a reasonable profit?
- Weighted Guidelines Method (Correct answer)
- Truth in Negotiations Act checklist
- Defense Contract Audit Manual (DCAM) cost review
- SBA profit reasonableness form
Correct answer: Weighted Guidelines Method
The Weighted Guidelines Method (DFARS 215.404-71) assigns weights to factors such as technical risk, contract type risk, and facilities investment to arrive at a structured profit objective.
Question 2: An indirect cost rate is calculated by dividing:
- Total indirect costs by total direct costs in the base (Correct answer)
- Total profit by total contract value
- Direct labor hours by total overhead costs
- Total revenue by number of contracts
Correct answer: Total indirect costs by total direct costs in the base
An indirect cost rate allocates overhead and G&A costs to contracts by dividing the indirect cost pool by an appropriate allocation base such as direct labor dollars.
Question 3: Under FAR 31.205-6, which type of compensation cost requires a cap when charged to government contracts?
- Fringe benefits for hourly workers
- Executive compensation above the statutory benchmark (Correct answer)
- Overtime premium for production employees
- Training costs for contract-specific skills
Correct answer: Executive compensation above the statutory benchmark
FAR 31.205-6(p) limits the allowability of senior executive compensation to a benchmark cap published annually, protecting the government from subsidizing excessive executive pay.
Question 4: The forward pricing rate agreement (FPRA) is primarily used to:
- Lock in a firm fixed price before contract negotiation begins
- Establish agreed-upon indirect cost rates for use in pricing future contracts and modifications (Correct answer)
- Guarantee the contractor a minimum profit margin
- Replace the requirement for certified cost or pricing data
Correct answer: Establish agreed-upon indirect cost rates for use in pricing future contracts and modifications
An FPRA is a bilateral agreement between the contractor and the government on future indirect rates, simplifying pricing of new contracts and modifications.
Question 5: Which cost principle governs the allowability of entertainment costs on government contracts?
- FAR 31.205-14 makes entertainment costs generally unallowable (Correct answer)
- FAR 31.205-1 allows entertainment if it promotes contractor morale
- Entertainment costs are allowable up to 2% of total contract value
- Entertainment costs are allowable only for foreign customers
Correct answer: FAR 31.205-14 makes entertainment costs generally unallowable
FAR 31.205-14 expressly lists entertainment costs — including amusements, diversion, and social activities — as unallowable costs that cannot be charged to government contracts.
Question 6: A Cost Performance Report (CPR) is required on contracts that have an Earned Value Management System (EVMS) because it:
- Replaces the need for a contracting officer's representative
- Provides integrated cost and schedule data to the government for oversight of contract performance (Correct answer)
- Documents all subcontractor payments for audit purposes
- Certifies that all invoices have been reviewed for allowability
Correct answer: Provides integrated cost and schedule data to the government for oversight of contract performance
The CPR's five formats give the government monthly visibility into cost/schedule variances, enabling early identification of problems requiring management attention.
CPCM Cost and Price Analysis 2
Which profit/fee negotiation objective tool does DCAA use to assess contractor risk and effort when determining a reasonable profit?