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    INCOME STATEMENT REVENUES sales 2,761,604 dividend income 300,000 interest income 7,606 TOTAL REVENUES 3,069,210 COST OF SALES raw material purchases 941,010 cost of sales freight 10,852 purchase discounts (1,978) TOTAL COST OF SALES 949,884 GROSS PROFIT 2,119,326 TOTAL EXPENSES 1,404,324 (there are some unallowable cost under Expenses including alot of duplicates without any distinguishing remarks, eg. (2) Wages Exp 39,841 and 127,686 and (2) Salaries Exp 55,790 and 4 different insurance exp including GrpHealth Ins 10,842, 7,685 and Insurance & Management Fee 865,991) NET INCOME 715,001 The ktr then used to calculation to figure his Single OH/G&A expense pool. This pool consists of all their company expenses except Direct Materials. YR2009 actual cost model: Revenues 2,761,604 (total revenues is 3,069,210) Direct Material 949,884 (this total cost of sales on the income statement) Expenses 1,404,324 Profit 415,001 (on the income statement net income is 715,001 and profit 2,119,326 so I'm not sure where the 415,001 comes from) 1,404,324 / 949,884 = 147% This was then applied to 22,134 in ex ess inventory and 566 in frieght charges (freight expenses are already listed on the income statement thus calculated in their OH/G&A rate.


    Answer

    First, in accordance with FAR 15.404-4 and DFARS 215.404-4, -70, and -71, profit analysis must be accomplished through the use of the weighted guidelines methodology.  The WGL will help you develop a profit position and provide specific support for your pre-negotiation profit objective.
     
    Second, keep in mind there is no one correct expense pool or allocation base.  Every business is different, their pools and bases are different, and therefore their rates may be different.  A G&A rate of 45% may be too low for one company, while a profit rate of 8% may be too high for another.  Comparing contractors’ rates is an apples-to-oranges exercise.  Instead, focus on company-specific information such as their disclosure statement, your WGL analysis, the company’s cost proposal, and so on.
     
    Third, request that the company submit particulars of how they arrived at their rates.  In other words, what elements did they include in their expense pool(s) and what comprises their base.  Remember that the government does not dictate to the company what to use as a base, nor do we define their pools.  As always, we must take exception to any unallowable expenses, the company must comply with CAS and GAAP (as applicable), and the company must be consistent in all rate applications.
     
    Finally, you may be interested in DAU continuous learning courses such as CLC 104, Analyzing Profit or Fee, and CLB 029, Rates, and others available from DAU’s iCatalog.  See
    http://icatalog.dau.mil/ and click on Continuous Learning for more information.

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