When using cost analysis, how are the direct/indirect costs, fringe benefits, and overheads evaluated?
A. The Best Practices Procurement Manual, Section 5.2Cost and Price Analysis discusses the issues involved in cost analysis. The BPPM is available online at: http://www.fta.dot.gov/library/admin/BPPM/ Basically, if you are going to evaluate indirect costs, such as overhead and fringe benefits, you will need some competency in accounting/auditing to do this. The Federal Government, for example, makes use of field audit personnel who go to the contractor’s facility to examine their books. You will have to review the various methods for allocating indirect costs to contracts and determine that the allocation methods are fair and reasonable, and are in accordance with Generally Accepted Accounting Principles (GAAP). You will also have to evaluate the company’s business projections for the coming year to determine if the projected indirect rates reflect a realistic assessment of future business, because if the projected rates are based on sales projections that are too low, then the propose
A. The Best Practices Procurement Manual, Section 5.2Cost and Price Analysis discusses the issues involved in cost analysis. Basically, if you are going to evaluate indirect costs, such as overhead and fringe benefits, you will need some competency in accounting/auditing to do this. The Federal Government, for example, makes use of field audit personnel who go to the contractor’s facility to examine their books. You will have to review the various methods for allocating indirect costs to contracts and determine that the allocation methods are fair and reasonable, and are in accordance with Generally Accepted Accounting Principles (GAAP). You will also have to evaluate the company’s business projections for the coming year to determine if the projected indirect rates reflect a realistic assessment of future business, because if the projected rates are based on sales projections that are too low, then the proposed indirect rates will be too high. Another concern when reviewing indirect r
