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 use the system. A company with only one electric meter might allocate the electricity bill to several departments in the company.

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.

In government contracting, a cost is determined allowable only when the cost complies with all of the following requirements: [1]

  1. Reasonableness
  2. Allocability
  3. Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances
  4. Terms of the contract
  5. Any limitations set forth in this subpart

 

AcqLinks and References:

Updated: 7/19/2017

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