In the light of my analysis and our preliminary discussions the remaining portion of this report will address three issues:

1. Application of the capital overhead rate to both research and development and production projects.

2. Different treatment of direct material, subcontract and consulting expenses.

3. Potential problems using the special overhead rate

(Editor’s Note. Though too extensive to recount here, we provided a detailed analysis of CAS 418 with particular emphasis on what constitutes "homogeneous" costs. Let it suffice here to define "homogeneous allocation of costs" as making sure the pool of costs, base used to apply them and resulting allocation to contracts are al balanced appropriate and the result is "equitable" where it does not result in a disproportionate allocation of indirect expenses.)

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