Calculating Your Indirect Rates
Can your accounting system calculate your indirect rates accurately?
If you’re a government contractor, or hope to be, you can’t leave your rates to chance.
In order to calculate your indirect rates, your accounting system must be able to segregate direct costs from indirect costs. Direct costs are cost that are specific to a contract. An example would be labor for a software engineer that is required to complete an effort on a contract. Indirect costs are those costs that are not directly identified with a single, final cost objective. Instead they are identified with two or more final cost objectives, or an intermediate cost objective. An example of an indirect cost would be labor for a bid and proposal effort.
After you’ve identified what your direct and indirect costs are, you must be able to logically and consistently allocate the indirect costs to the final and/or intermediate cost objectives. You have to be able to precisely relate those costs to the reasons you’re incurring the costs. And you must have a way to allocate indirect costs across jobs and contracts. If the cost benefits the contact as well as other work, you should be able to distribute the overall cost according to the proportion of benefits received. The basis for distributing indirect costs is known as an allocation base.
As you accumulate costs, you must determine whether they are allowable under government regulations. There are a number of unallowable costs that cannot be charged to federal contracts.
We at Elite Government Solutions understand the requirements. Our team has expertise in both accounting/bookkeeping and DCAA compliance. We can do a complete analysis of your current accounting system to see whether it meets the very specific demands set out for government contractors.
Let Elite Government Solutions tailor an accounting system for you to take the pain out of the contracting process. Call 301-495-5838 or toll free 800-219-2854.