FAR CONCEPT OF TOTAL COST

FAR 31.201-1 discusses total cost: “The total cost of a contract is the sum of the allowable direct and indirect cost allocable to the contract, incurred or to be incurred, less any allocable credits, plus any allocable cost of money pursuant to 31.205-10. In ascertaining what constitutes a cost, any generally accepted method of determining or estimating costs that is equitable and is consistently applied may be used, including standard costs properly adjusted for applicable variances. See 31.201-2(b) and (c) for CAS requirements.”

Thus, the FAR neither requires nor mandates a single accounting system or method of determining total cost. Contractors are free to develop and use the type of accounting system they deem appropriate to reflect the financial results of their operations properly, considering the nature of their services or products. A contractor can still choose many of the accounting techniques to use, including the differentiation of direct and indirect costs, the number and content of overhead cost pools, and the method of allocating overhead costs to cost objectives.