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What Do You Know About Unallowables?

1. The following costs are allowable:
  1. Entertainment
  2. Alcohol
  3. Attorney fees to unsuccessfully defend a fraud case brought by the Government
  4. Corporate, state income taxes
2. The Acme Company makes snacks near an area hit by a hurricane. Costs associated with the donation of excess snacks to a nonprofit organization for disaster assistance is:
  1. Allowable only when snacks are excess and not otherwise usable
  2. Allowable only when snacks are donated to a nonprofit organization
  3. Unallowable
  4. Allowable only when a disaster is declared by a governmental component
Woman at laptop reviewing unallowables in a Government contract
3. While reorganizing the structure and registration of the corporation, the following costs are allowable:
  1. (New) Incorporation fees
  2. Direct costs on a continuing Government contract
  3. Accountants’ indirect labor related to the reorganization, so long as performed by employees
  4. Fees of outside management consultants working on the reorganization
4. The following cost is allowable:
  1. The next-higher priced airfare, in excess of the lowest priced fare, with documentation showing that the lowest priced fare requires 13 hours of circuitous routing to arrive at the destination at 11 p.m.
  2. The restoration of facilities to approximately the same condition existing immediately before the start of a Government contract
  3. Federal income taxes
  4. Use of a company owned vehicle for transportation to and from work
5. For the cost of consultant services to be allowable, supporting documentation shows:
  1. The rate of compensation
  2. Details of actual services performed
  3. Actual time expended on tasks
  4. All of the above
6. The Junior Welder is in training by the Senior Welder. The training program lasts two months and requires eight hours each day for five days each week. The Junior Welder charges Overhead for training time. In order to correct some improper welds, the Junior Welder extends training to include two hours of overtime, for which the Junior Welder is compensated. The gross wages for the overtime at time-and-one-half is charged to:
  1. Allowable Overhead
  2. Unallowable Overhead
7. The Government terminated a contract for convenience. Performance on that contract required an annual software subscription, expensed in the General Ledger at $1,000 per month. Only 10 months of the annual payment was recorded. The additional two months are charged to:
  1. Allowable Direct, Termination Costs
  2. Unallowable Direct, original contract (Project or Job)
8. The Acme Company is desperately trying to build a proposal for their Government customer by the due date. To entice employees to work through lunch on the proposal, the Company pays for a catered lunch that employees can eat at their desks. This routine cost of doing business, which benefits the Government, is charged to:
  1. Allowable Bid & Proposal Meals
  2. Unallowable Bid & Proposal Meals
9. In order to perform their new Government contract, Acme Company buys $20,000 worth of equipment funded by an asset management company. The nature of the equipment renders its salvage value at zero dollars after the 10-months of use on this one contract. The 10 monthly repayments to the asset management company are charged to:
  1. Allowable Direct Equipment
  2. Unallowable Interest for an imputed (calculated based on current market rates for) interest with the remainder to either Allowable Direct Equipment or Allowable Loan Payable – Principle
  3. Depreciation Expense – Equipment
  4. Allowable Loan Payable
10. Acme put a help-wanted ad on a social media site. To attract long-term new-hires, the ad includes extensive descriptions of the company’s products and capabilities. The ad also lists brief descriptions of the three positions for which Acme is hiring. The cost of this help-wanted advertising is charged to:
  1. Allowable G&A Recruitment
  2. Unallowable G&A Recruitment
11. A new-hire joined Acme in February and resigned in October to accept a better-paying job. The costs that Acme paid in February to relocate the new-hire are charged to:
  1. Allowable G&A Recruitment
  2. Unallowable G&A Recruitment
12. Acme writes off a customer account receivable as uncollectable. This routine cost of doing business is charged to:
  1. Allowable G&A
  2. Unallowable G&A
13. After a Government contract ended, Acme restored facilities to approximately the same condition existing immediately before the start of that Government contract. The expired contract used no Government property and Acme needed a (restored) place for Government property on a potential new contract. The cost of restoration is charged to:
  1. Allowable direct costs on the expired contract
  2. Unallowable Facilities or G&A
14. As a Fringe benefit, Acme contributes to the college savings plans for employee dependents. Acme matches the employee contribution up to .50% of gross pay, each pay period. The Acme match is charged to:
  1. An allowable Fringe account
  2. An unallowable Fringe account
15. While building a cost proposal, Acme recognizes a 51% best guess that a costly additional test will be required and rework performed. Program management is not sure the test and rework will become necessary, so includes the cost of the test and rework as:
  1. Allowable Contingency at 51% of projected costs
  2. Unallowable Contingency in the notes, but not included in the proposed cost
  3. Allowable Test and Rework at 100% of projected costs

ANSWERS:

1. d. – State taxes are allowable per FAR 31.205-41. The following are unallowable: Entertainment FAR 31.205-14, Alcohol FAR 31.205-51, and (unsuccessful) Fraud defense FAR 31.205-47.

2. c. – Costs associated with the donation of excess food to nonprofit organizations for disaster assistance are unallowable per FAR 31.205-1 (f) (8).

3. b. – Costs of organization and reorganization and related costs unallowable. This includes incorporation fees and costs of attorneys, accountants, brokers, management consultants and investment counselors, whether or not employees of the contractor per FAR 31.205-27.

4. a. – Airfare costs in excess of the lowest priced airfare are allowable, when documentation shows that the lowest fare requires circuitous routing, travel during unreasonable hours, or excessively prolonged travel per FAR 31.205-46 (b). The following are unallowable:  Restoration FAR 31.205-31, Federal Income Taxes FAR 31.205-41 (b), and Travel to and from work FAR 31.205-46 (d).

5. d. – For the cost of consultant services to be allowable, evidence includes rate of compensation; details of actual services performed, including subjects discussed; and time expended per FAR 31.205-33 (f).

6. b. – Overtime compensation for training is unallowable per FAR 31.205-44 (a).

7. a. – Costs which cannot be discontinued immediately after the effective date of termination are generally allowable per FAR 31.205-42 (b).

8. b. – Any losses sustained because food services are furnished without charge are unallowable per FAR 31.205-13 (d) (1) (ii).

9. b. – Interest on borrowings (however represented) are unallowable per FAR 31.205-20. Note that the principle is not a depreciation expense, because the equipment has a useful life less than one year. The charge is not indirect (to Overhead or G&A), but a direct charge, because the equipment benefits only one contract (or Project/Job).

10. b. – Help-wanted advertising is unallowable when it includes extensive descriptions of the company’s products or capabilities per FAR 31.205-34 (b) (2).

11. b. – For relocation costs for a new-hire to be allowable, the term of employment is 12 months or more per FAR 31.205-35 (f). Also, FAR 31.205-35 (d) renders relocation costs unallowable when the employee resigns within 12 months for reasons within the employee’s control.

12. b. – Bad debts are unallowable per FAR 31.205-3.

13. b. – Costs of restoring or rehabilitating facilities to approximately the same condition existing immediately before the start of a Government contract are unallowable per FAR 31.205-31. Only the cost of removing Government property and restoration required by such removal is allowable.

14. b. – Contributions to college savings plans for employee dependents are unallowable per FAR 31.205-44 (e).

15. c. – Costs included in a proposal are the submitter’s 51% best guess. Costs for contingencies are not allowable per FAR 31.205-7.

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