MANAGEMENT INFORMATION SYSTEM REQUIREMENTS in Visual Studio .NET

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372 MANAGEMENT INFORMATION SYSTEM REQUIREMENTS
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and the complexity of the contract requirements A key requirement is the existence of adequate audit trails An accounting system provides satisfactory audit trails if: (1) every transaction is traceable from its origin to its nal posting in the books of account; (2) every posting to accounts is susceptible to breakdown into identi able transactions; and (3) adequate documentation (eg, time cards or vendors invoices) is available and accessible to support the accuracy and validity of individual transactions In a job-order costing system, costs are collected using a work-order process Contractors, particularly in a production environment, are not required by the regulations to account for costs by contract (eg, maintain a job-order cost accounting system) A cost accounting system in a production environment is generally driven by the contractor s products and/or production processes The cost accounting system should be deemed adequate if production costs are appropriately, equitably, and consistently allocated to all nal cost objectives The obvious necessity is to capture and accumulate costs in a manner that re ects the cost of performance in individual government contracts To do this, certain costs that can be identi ed speci cally with contracts and/or products are treated as direct costs and are charged in that manner Typically, direct costs include material, subcontracts, and labor, but they are by no means limited to these FAR 31201-4 requires that costs charged directly to contracts be allocated on a basis of the relative bene ts received or other equitable relationship Indirect costs, or other costs that bene t more than one contract, must be pooled and allocated to contracts on some equitable basis According to FAR 31203(c), the general criteria for establishing indirect cost pools are:
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The contractor shall accumulate indirect costs by logical cost groupings with due consideration of the reasons for incurring such costs The contractor shall determine each grouping so as to permit use of an allocation base that is common to all cost objectives to which the grouping is to be allocated The base selected shall allocate the grouping on the basis of the bene ts accruing to intermediate and nal cost objectives When substantially the same results can be achieved through less precise methods, the number and composition of cost groupings should be governed by practical considerations and should not unduly complicate the allocation
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FAR 31203(d) similarly provides exibility in determining what allocation base to use in distributing costs from the indirect cost pools to contracts:
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Once an appropriate base for allocating indirect costs has been accepted, the contractor shall not fragment the base by removing individual elements All items properly includable in an indirect cost base shall bear a pro rata share of indirect costs irrespective of their acceptance as Government contract costs For example, when a cost input base is used for the allocation of G&A costs, the contractor shall include in the base all items that would properly be part of the cost input base, whether allowable or unallowable, and these items shall bear their pro rata share of G&A costs
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Accounting for indirect costs presents a challenge to those uninitiated in government contracting The government has promulgated speci c rules in FAR Part 31 and CAS governing the allocability of indirect costs However, these rules still permit considerable exibility in the number and types of pools that can be selected and the methods used for allocating indirect costs The allocation of indirect costs in a highly automated environment presents an even greater challenge, since typical overhead allocation bases, such as direct labor, may represent only a minor component of total factory costs In this environment, the need for multiple cost pools allocated over nonlabor bases, such as machine usage, may be required This requirement is evident in activity-based costing or advanced cost management systems that have been implemented by some government contractors In an automated environment, requirements for audit trails still exist; however, additional controls over input to the system and program logic are essential to validate the accuracy of such systems
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