Step 9: Indirect Rate Calculations
MEETS THE FOLLOWING DCAA REQUIREMENTS
- Proper segregation of direct costs from indirect costs
- Identification and accumulation of direct costs by contract
- Logical and consistent method for allocating indirect costs to cost objectives
- Reliable data for use in pricing follow-on acquisitions
In this article, we will compute your actual indirect rates from your Quickbooks accounting system. We provide a sample excel template that you can utilize to compute your indirect rates and allocate indirect costs to your contracts. The Profit by Job – No Name report will be used to allocate indirect expenses to your contracts.
For this article, we are using a simple and commonly seen pool structure that consists of three pools (fringe, overhead and G&A) and a facilities pool. Your pool structure may vary from this form, and many variations do exist and are accepted by DCAA. In our example here, the fringe allocation related to Direct Labor is part of the Overhead base. Facilities expense is allocated based on relative labor, and the base for the G&A allocation is Total Cost Input.
Other variations that you may encounter include multiple fringe pools, multiple overhead pools, service centers, fringe on Direct Labor included in the Overhead Pool and not the Overhead Base, and Valued Added base for G&A with a Material Handling/Subcontractor Pool. Each company needs to determine which pool structure is best suited for their business and which method most fairly allocates indirect expenses.
How to Complete the Spread Sheet
When you download the Indirect Rate Calculation Spread Sheet, you will note that certain cells are shaded in a light blue color. These are input cells. If you are using our standard Govcon chart of accounts, you'll be able to obtain the numbers for input by creating an expanded Profit & Loss Statement. Set the date range to Year-To-Date to compute your running rate through the fiscal year.
You will also see a table where contract costs are allocated. Obtain this information from the Profit & Loss by Job report in Quickbooks and enter the data into the input cells.
Compare to Provisional Rates
Note that one of the contract columns is entitled as a CPFF contract. Update your provisional bill rates in the lower section of the table to compute if you are overbilling or underbilling compare to your actual rates.