I am often asked about indirect costs and how to calculate indirect cost rates that are DCAA compliant or compliant with FAR 31.2.  Indirect costs is a highly complex and often heavily debated subject with auditors.  It is probably the most contentious subject under accounting for government contracts. 

I hope to answer those questions on this page. 

For starters, please fine below tables of indirect cost rate calculations for a typical business using the three rate system, Fringe, Overhead and G&A.  Keep in mind the number and structure of indirect rates can vary from contractor to contractor depending on specific circumstances.  The tables below are not reflective of any contractor or client.  They are simplified illustrations to show the concept of compliant indirect rate calculations.  Actual indirect rate computations will vary and will include many more accounts and may be a bit more complex.  The tables below are illustrations only, the figures are ficticious.  The rate calculations are both DCAA and FAR compliant.

Table 1 – Fringe Rate Calculation Example (Illustrative Purposes Only)

Fringe Pool:

AmountAllocation
   
Payroll Taxes$20,000 
Compensated Absences  15,000 
Employee Benefits  25,000 
Other  
   
Total Fringe Pool$60,000 
   
Allocation Base:  
   
Direct Labor$80,000$33,103
OH Labor  15,000    6,207
G&A Labor   30,000  12,414
IR&D/B&P Labor  15,000    6,207
Other Labor   5,000    2,069
   
Total Allocation Base$145,000$60,000
   
Rate41.38% 

 Table 2 – Overhead Rate (Illustrative Purposes Only)

Overhead Pool

AmountAllocation
   
Overhead Labor$15,000 
Rent  30,000 
Depreciation  25,000 
Supplies  10,000 
Other    5,000 
Less: Unallowable Costs     (207) 
Fringe Allocated to OH Labor (Fringe Rate * OH Labor)    6,207 
   
Total Overhead Pool $91,000 
   
Allocation Base:  
   
Direct Labor$80,000$54,202
B&P/IR&D  15,000  10,163
Fringe Applicable to Direct Labor  33,103  22,429
Fringe Applicable to IR&D/B&P Labor    6,207    4,205
Total Allocation Base$134,310$91,000
   
Rate 67.75% 

Table 3 – General And Administrative (G&A) (Illustrative Purposes Only)

G&A Pool

AmountAllocation
   
G&A Labor$30,000 
Rent 10,000 
Professional Services 25,000 
Business Development 15,000 
Travel 25,000 
Other   5,000 
Less: Unallowable Costs  (5,000) 
Fringe Allocated to G&A Labor (Fringe Rate * G&A Labor)12,414 
IR&D/B&P Labor15,000 
Fringe Allocated to IR&D/B&P Labor  6,207 
Overhead Allocated to IR&D/B&P Labor 10,163 
   
Total G&A$148,784 
   
Allocation Base:  
   
Direct Labor$  80,000$17,251
Direct Materials  400,000  86,259
ODC  100,000  21,565
Fringe Applicable to Direct Labor    33,103   7,139
OH Applicable to Direct Labor    54,202   11,689
OH Applicable to Fringe   22,428   4,837
Unallowable OH Costs       207       45
   
Total Allocation Base$689,940$148,784
   
Rate21.56% 

 

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