An Allocated Cost is a type of expense that is clearly associated with and so can be readily assigned to a certain business process, project or department. Allocated cost types might include fabrication costs, sales costs, project management costs, and associated fixed costs. Another example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that uses the system. A company with only one electric meter might allocate the electricity bill to several departments in the company.
Regulation: Federal Acquisition Regulation (FAR) Clause (FAR 31.201)
Allocated Cost is the cost that is allocable to a government contract if it: [1]
- is incurred specifically for the contract;
- benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or
- is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.
Allocated Cost Determination
In government contracting, a cost is determined allowable only when the cost complies with all of the following requirements: [1]
- Reasonableness
- Allocability
- Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances
- Terms of the contract
- Any limitations set forth in this subpart
AcqLinks and References:
- [1] Website: FAR 31.201 Contracts with Commercial Organizations
Updated: 7/20/2021
Rank: G3
