RONALD S. MARTA, CPA BUSINESS COUNSELOR UNIVERSITY OF HOUSTON PROCUREMENT TECHNICAL ASSISTANCE CENTER April 11, 2013

FEDERAL ACQUISITION REGULATION (FAR) Policies and Procedures for acquisition by executive agencies. CODE OF FEDERAL REGULATIONS (CFR) Administrative Law Based on U.S. Code : Statutes enacted by Congress. U.S, ode 2April 11, 2013

Part 31 - Contract Cost Principles and Procedures 3April 11, 2013

Government breaks costs into two basic categories: DirectIndirect 4April 11, 2013

Directly connected with producing a product or providing a service. Benefit one contract. 5April 11, 2013

Costs not connected with a particular product or service, but are needed for business to function. Costs that benefit more than one contract. 6April 11, 2013

Payroll Overhead Pool: Social Security, Medicare, health insurance, etc. Costs associated with labor. General and Administrative Pool: Expenses that are necessary for the general management and administration of the business. Management/support labor, home office supplies, professional fees, rent, utilities, etc. 7April 11, 2013

Payroll Overhead Base: Productive Labor (direct and indirect) General and Administrative (G & A) Base: Total Cost Input 8April 11, 2013

Payroll Overhead G & A Off Site Overhead On Site Overhead Direct Labor Direct Material Other Direct Cost % of Direct Labor % of Direct Labor; may be on other costs % of all other costs (direct costs, payroll o/h, on/off site o/h) Direct Costs Indirect Costs Job 1Job 2Job 3 9April 11, 2013

OVERHEAD G & A ACCOUNT POOL BASEPOOLBASE COST OF SALES (DIRECT ONLY): DIRECT MATERIAL $ 100 DIRECT LABOR $1,000 1,000 OTHER DIRECT COSTS 300 TOTAL COST OF SALES $1,400 PAYROLL OVERHEAD SOCIAL SECURITY $ 70 MEDICARE 20 HEALTH INSURANCE 30 VACATION, HOLIDAY &SICK 80 TOTAL PAYROLL OVERHEAD $200$ 200 GENERAL AND ADMINISTRATIVE ACCOUNTING$ 20 DEPRECIATION 30 OFFICE SUPPLIES 20 RENT 70 TELEPHONE 20 TOTAL G & A$160 TOTAL POOL / BASE $200 $1,000$160$1,600 RATE (%) 20 % 10 % ABC Company Indirect Costs 10April 11, 2013

University of Houston Procurement Technical Assistance Center 2302 Fannin Street, Ste. 200 Houston, TX April 11, 2013