What statement is true about costs in a contract: allocable vs allowable?

What statement is true about costs in a contract: allocable vs allowable?

• A. Allowable costs are those that are not allocable and not in accordance with CAS and FAR.
• B. Allocable costs are those not incurred for this contract.
• C. Allocable costs are costs that can be allocated across multiple contracts.
• D. Allocable costs are incurred specifically for this contract.

Answer: (D)

In contract cost accounting, an allocable cost is one that can be charged to a government contract because it is incurred for the contract or for activities that directly benefit the contract. The statement that allocable costs are incurred specifically for this contract best fits that idea, since costs charged to the contract must have a direct relationship to its performance. Keep in mind that allowable costs are about compliance with FAR/CAS rules. A cost must be both allocable to the contract and allowable under the regulations to be charged to the contract. Some costs can be allocable but not allowable, so the two concepts work together to determine what can actually be billed. The other options misstate the relationship. Allowable costs aren’t defined by not being allocable, and allocable costs aren’t simply “not incurred for this contract” or automatically those that span multiple contracts—allocable means properly chargeable to the contract based on its benefits.

In contract cost accounting, an allocable cost is one that can be charged to a government contract because it is incurred for the contract or for activities that directly benefit the contract. The statement that allocable costs are incurred specifically for this contract best fits that idea, since costs charged to the contract must have a direct relationship to its performance.

Keep in mind that allowable costs are about compliance with FAR/CAS rules. A cost must be both allocable to the contract and allowable under the regulations to be charged to the contract. Some costs can be allocable but not allowable, so the two concepts work together to determine what can actually be billed.

The other options misstate the relationship. Allowable costs aren’t defined by not being allocable, and allocable costs aren’t simply “not incurred for this contract” or automatically those that span multiple contracts—allocable means properly chargeable to the contract based on its benefits.