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UNDERSTANDING INDIRECT COSTS

UNDERSTANDING INDIRECT COSTS. RONALD S. MARTA, CPA BUSINESS COUNSELOR UNIVERSITY OF HOUSTON PROCUREMENT TECHNICAL ASSISTANCE CENTER 713-752-8450 rmarta@uh.edu. SOURCES. FEDERAL ACQUISITION REGULATION (FAR) Policies and Procedures for acquisition by executive agencies .

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UNDERSTANDING INDIRECT COSTS

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  1. UNDERSTANDING INDIRECT COSTS RONALD S. MARTA, CPA BUSINESS COUNSELOR UNIVERSITY OF HOUSTON PROCUREMENT TECHNICAL ASSISTANCE CENTER 713-752-8450 rmarta@uh.edu

  2. SOURCES 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

  3. FAR Part 31 - Contract Cost Principles and Procedures

  4. Costs Government breaks costs into two basic categories:

  5. Direct Costs(FAR 31.202) • Directly connected with producing a product or providing a service. • Benefit one contract.

  6. Indirect Costs(FAR 31.203) • Costs not connected with a particular product or service, • but are needed for business to • function. • Costs that benefit more than one contract.

  7. Indirect Cost Pools 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.

  8. Cost Bases Payroll Overhead Base: Productive Labor (direct and indirect) General and Administrative (G & A) Base: Total Cost Input

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

  10. ABC CompanyIndirect Costs OVERHEADG & A ACCOUNTPOOLBASEPOOLBASE 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 %

  11. Contact Information University of Houston Procurement Technical Assistance Center 2302 Fannin Street, Ste. 200 Houston, TX 77002 713-752-8477 http://www.ptac.uh.edu

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