DCAA’s Contract Audit Manual at Chapter 7-1909 provides guidance to auditors in various cost allocation issues:

1. Deferral versus expense method.  CAS 406.61 requires restructuring costs to be treated as a deferred charge and amortized over a period in which the benefits are expected to be accrued but not longer than five years. However, subsequent guidance issued by the Director of Defense Procurement on May 20, 1997 provided it would be acceptable for ACOs to agree to allow contractors to expense restructuring costs in one period when the government benefits (the impact on government contracts would be favorable if, for example, the mix of government contracts were such that there were more contracts at a later date than in the period the costs were expensed).

2. Direct costs.  Direct restructuring costs which benefit a single cost objective should be charged to only that objective.  For example, if a contractor’s restructuring activities result in the need to recalibrate special test equipment used on only one contract then the recalibration costs should be charged to that one contract.

3. Indirect costs.  For indirect restructuring costs, they should be allocated in accordance with CAS 403, allocating home office costs, if they are incurred at the home office. If incurred at a business segment level where the benefit is for more than one segment, the costs should be assigned to the home office and allocated, again, according to CAS 403. If the costs are incurred at only one segment and benefit only that segment, they should be allocated only to that one segment in accordance with CAS 418. 

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