CAS 406 does not require that the indirect cost allocation rates used to expedite the closing of contracts be based on the actual data for the annual cost accounting period. The standard allows for use of rates based on estimates developed for the purpose of closing out contracts that are terminated or completed before the end of the accounting period. The Bender text provides an illustration where the contractor uses a calendar fiscal year and it completes a three year cost type contract in February. It submits closing papers showing a 125% overhead rate based on two months of actuals, the auditor recommends using the prior year’s overhead rate of 95% and the expected rate based on estimates is 110% and the question is what cost accounting period should the contractor use. The answer is the that since the contract ends during the last fiscal year of the contract estimates of annual overhead rates may be used as long as they are developed from data representing a full cost accounting period.

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