BUS 315 Cost and Price Analysis Week 10 Discussion 2, business and finance homework help

  

“NASA” Please respond to the following:Analyze the methods used by NASA in itsstructured profit approach, and speculate on how VectorCal could possibly use the same structured profit approach with their manufacturing operations. Support your analysis with examples of such an approach.Take a position on whether or not companies benefit from using a structured profit approach to calculate their profits. Provide an explanation of your position with at least two examples or scenarios of the use of such an approach.bus315_w10_p2.pptx
bus315_w10_p2.pptx

Unformatted Attachment Preview

Don't use plagiarized sources. Get Your Custom Essay on
BUS 315 Cost and Price Analysis Week 10 Discussion 2, business and finance homework help
Just from $10/Page
Order Essay

Cost and Price Analysis
BUS 315
Equitable Adjustments and the
Role of Auditors
Topics
• To cover this objective, we will discuss the
following topics:
– Preferred measure and processing of equitable
adjustments
– Approaches to equitable adjustment
– Format for submitting proposals for equitable
adjustments
– Reviewing and evaluating proposed or incurred costs
– The Defense Contract Audit Agency (DCAA)
Reasonable Cost Approach
• General principles in measuring equitable
adjustments
– Some cost impact must result from the contract change
– Both parties, the contractor and the government, are to
remain whole
Example
Improper Base for Equitable Adjustment Erodes Contractor’s Profit
Improper
Cost of Component Part Kappa as Changed
$21,000
Cost in Original Price for Component Part Gamma
$20,000
Actual Cost of Component Part Gamma
Equitable Adjustment
Proper
$21,000
$15,000
$1,000
$6,000
Indirect Costs and Profit in
Equitable Adjustment
• Indirect Costs in Equitable Adjustment
– Overhead and G&A expenses are normally indirect costs
associated with contractor work
– An equitable adjustment is based on the changes in the
contractor’s actual costs created by the contract change
• Profit in Equitable Adjustment
– Profit is specifically excluded from equitable adjustments
resulting from suspension of work. All other equitable
adjustments include profit as a long- standing practice
Processing
• FAR 33.207 (c) requires the following certification
accompany any claim in excess of $100,000
– I certify that the claim is made in good faith; that the
supporting data are accurate and complete to the best of
my knowledge and belief; that the amount requested
accurately reflects the contract adjustment for which the
contractor believes the Government is liable; and that I
am duly authorized to certify the claim on behalf of the
contractor
Timeliness and
Segregated Costs
• Timeliness of Equitable Adjustments
– it is important to negotiate and settle change orders as
soon as possible
– if several changes affect the same parts of the work, it
may be very difficult to keep the costs for each change
separated
• Equitable Adjustment Based on Segregated Costs
– Experienced contractors will try to segregate the costs
for performing changed work
– FAR 52.243-6, Change Order Accounting, may be used
in research and development and supply contracts if
numerous changes are likely
Approaches

Reasonable Cost Approach



attempts to keep the contractor in the same profit position on
the unchanged work after the change than it was before the
change
should be used whenever accurate information is available
concerning contractor costs affected by the modification
Total Cost Approach

Equitable Adjustments Using Total Cost Approach
Cost of Work as Charged
Less: Cost of Work Included in Original Bid or Proposal
Plus: Profit
Equals Equitable Adjustment – Total Cost Approach
Approaches, continued
• Jury Verdict Approach
– The government uses the jury verdict method when the
contractor is clearly due an adjustment but there is no
clear way to identify the associated costs for reasonable
cost analysis
• Reasonable Value Approach
– Until 1963, reasonable value was the basis frequently
used to estimate the change in contract value that
resulted from the contract modification
– the reasonable value approach has been replaced by
the reasonable cost approach
Format for Submitting
Proposals
• Net Cost of a Contract Modification
N=A+D+C
A(dded) = current estimate of the cost to complete
added work
D(eleted) = Current estimate of the cost to complete
deleted work not yet performed
C(ost) = Actual cost of all deleted work already
performed
N(et) = Net change in cost related to a contract
modication
Government-Caused Delays
• 2 major points must be established when
there are delays
– the government caused delays, entitling the
contractor to an equitable adjustment
– the amount of the claim for the unabsorbed
overhead is justifiable
Eichleay Formula

Eichleay Assumptions
– A = total billings on the delayed contract: $930,000
– B = total billings on all contracts between award and completion of the delayed
contract: $3,100,000
– C = relevant overhead between award and completion of the delayed contract:
$391,500
– D = Number of days between award and completion of the delayed contract,
including delay: 270 days
– E = Number of days that performance was delayed: 30 days

Eichleay Formula
– Step 1: determine the ratio of billings applicable to the delayed contract to all firm
billings
A/B = $930,000/$3,100,000 = 30%
– Step 2: determine the unabsorbed overhead applicable to the delayed contract
(Results of Step 1) x C = 30% x $391,500 = 117,450
– Step 3: determine the daily unabsorbed overhead applicable to the delayed
contract
(Results of Step 2)/D = $117,450/270 days = $435
– Step 4: determine the unabsorbed overhead applicable to the delayed contract –
the equitable adjustment for the delay
(Results of Step 3 ) x E = $435 x 30 days = $13,050
Eichleay Formula Assumptions
and Adjustments
• Basic Eichleay formula based on the following
assumptions:




overhead costs include only fixed costs
the contractor cannot replace the suspended work with other work
there is a total work stoppage
the cost of the delay is the same regardless of the percentage of
contract completion
– the facilities are operating at or near capacity
• 3 possible adjustments to Eichleay to produce more
equitable results
– Eichleay Formula adjusted for a partial replacement of work
– Eichleay Formula adjusted for a partial work stoppage
– Eichleay formula adjusted for less than capacity operation
Reviewing and Evaluating
Proposed or Incurred Costs
• Contract auditors will not:
– Ask to review proposed price submitted in response to
sealed bidding
– Ask to review costs proposed in response to RFP
• Audit procedure and issuing report
• Costs
– Questioned
– Unsupported
– Unresolved
Pre-award Survey to Review and
Approve Accounting Systems
• Is contractor’s accounting system adequate?
• Disapproval
– No cost-reimbursement, fixed-price incentive, or fixedprice redetermination contracts
– Not in contractor’s best interest
Pre-award Survey to
Determine Financial Capability
• Contractor must be:
– Solvent
– Financially strong
• “Responsible financial capability”
Defense Contract Audit
Agency
• Definition
– Dominant federal agency that performs contract
audit work
• Website
– http://www.dcaa.mil
Check Your Understanding
Summary
• Preferred measure and processing of equitable
adjustments
• Approaches to equitable adjustment
• Format for submitting proposals for equitable
adjustments
• Reviewing and evaluating proposed or incurred
costs
• The Defense Contract Audit Agency (DCAA)

Purchase answer to see full
attachment

Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 30% with the discount code ESSAYSHELP