A change in the composition of the allocation base occurs when (a) a change in the elements of the base or (b) a change in the activities that are included in the base. However, a volume change in the base (e.g. addition or deletion of a contract or a business segment) does not, in itself, represent a change. The elements include not only the type of base (e.g. direct labor) but the composition of that type (e.g. direct labor dollars plus overtime premium or fringe benefits). A change in the elements making up the base is an accounting change. For example, a change from a direct labor dollar to a direct labor dollar plus overtime premium is a change in the composition of the allocation base.

The composition of the base also encompasses the activities of the base (e.g. systems engineering, design engineering, fabrication) that are in some way related to the activities in the pool. A change in the activities is a change in the composition of the base. For example, a change from a machining direct labor dollar allocation base to an assembly direct labor dollar base is a change. However, as we have seen, volume fluctuations do not represent the change so, for example, a contractor that purchases a new segment and adds it to its home office allocation base does not change the composition of the home office allocation base.

{TAG_FORM_TITLE}