(g) A "Disclosure Statement" is the Disclosure Statement required by Cost Accounting Standards Board regulation (Part 351 of this chapter).

(h) A "cost account practice" is any accounting method or technique which is used for measurement of cost, I assignment of cost to cost accounting periods, or allocation of cost to cost objectives.

(1) Measurement of cost encompasses accounting methods and techniques used in defining the components of cost, determining the basis for cost measurement, and establishing criteria for use of alternative cost measurement techniques. The deter*mination of the amount paid or a change in the amount, paid for a unit of goods and services is not a cost accounting practice. Examples of cost accounting practices which involve measurement of costs are:

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(i) The use of either historical cost, market value, or present value;

(ii) The use of standard cost or actual cost; or

(iii) The designation of those items of cost which must be included or excluded from tangible capital assets or pension cost.

(2) Assignment of cost to cost accounting periods refers to a method or technique used in determining the amount of cost to be assigned to individual cost accounting periods. Examples of cost accounting practices which involve the assignment of cost to cost accounting periods are requirements for the use of specified accrual basis accounting or cash basis accounting for a cost element.

(3) Allocation of cost to cost objectives includes both direct and indirect allocation of cost. Examples of cost accounting practices involving allocation of cost to cost objectives are the ac

I. The method or technique used for

Description of changes

counting methods or techniques used to accumulate cost, to determine whether a cost is to be directly or indirectly allocated, to determine the composition of cost pools, and to determine the selection and composition of the appropriate allocation base.

(i) A "change to either a disclosed cost accounting practice or an established cost accounting practice" is any alteration in a cost accounting practice, as defined in paragraph (h) of this section, whether or not such practices are covered by a Disclosure Statement, except that:

(1) The initial adoption of a cost accounting practice for the first time a cost is incurred, or a function is created, is not a change in cost accounting practice. The partial or total elimination of a cost or the cost of a function is not a change in cost accounting practice. As used here, function is an activity or group of activities that is identifiable in scope and has a purpose or end to be accomplished.

(2) The revision of a cost accounting practice for a cost which previously had been immaterial is not a change in cost accounting practice.

(j) Illustrations of changes. (1) In all of the following cases where a "change to either a disclosed cost accounting practice or an established cost accounting practice" has taken place, modifications to the affected contracts would be considered in accordance with this Part 331, Contract Coverage, and Part 332, Modified Contract Coverage, as amended. Under § 331.71, price adjustments, with appropriate application of offsets, would be required only if the net cost impact of the change were material.

(2) The following are illustrations of changes which meet the definition of "change to either a disclosed cost accounting practice or an established cost accounting practice" because: measuring costs has been changed.

Accounting treatment

1. Contractor changes his acturial cost method for 1. (a) Before change: The contractor computed computing pension costs.

2. Contractor uses standard costs to account for his direct labor. Labor cost at standard was computed by multiplying labor-time standard by actual labor rates. The contractor changes the computation by multiplying labor-time standard by labor-rate standard.

pension costs using the aggregate cost method. (b) After change: The contractor computes pension cost using the unit credit method.

2. (a) Before change: Contractor's direct labor cost was measured with only one component set at standard.

(b) After change: Contractor's direct labor cost is measured with both the time and rate components set at standard.

II. The method or technique used for assignment of cost-to-cost accounting periods has been changed.

Description of change

Accounting treatment

1. Contractor changes his established criteria for cap- 1. (a) Before change: Items having acquisition costs italizing certain classes of tangible capital assets whose acquisition costs totaled $1 million per cost accounting period.

of between $200 and $400 per unit were capitalized and depreciated over a number of cost accounting periods.

(b) After change: The contractor charges the value of assets costing between $200 and $400 per unit to an indirect expense pool which is allocated to the cost objectives of the cost accounting period in which the cost was incurred.

2. Contractor changes his method for computing de- 2. (a) Before change: The contractor assigned depreciation for a class of assets.

3. Contractor changes his general method of determining asset lives for classes of assets acquired prior to the effective date of CAS 409.

preciation costs to cost accounting periods using an accelerated method.

(b) After change: The contractor assigns depreciation costs to cost accounting periods using the straight line method.

3. (a) Before change: The contractor identified the cost accounting pericds to which the costs of tangible capital assets would be assigned using guideline class lives provided in IRS Rev. Pro. 72-10.

(b) After change: The contractor changes the method by which he identifies the cost accounting periods to which the costs of tangible capital assets will be assigned. He now uses the expected actual lives based on past usage.

III. The method or technique used for allocating costs has been changed.

Description of change

Accounting treatment

1. Contractor changes his method of allocating G&A 1. (a) Before change: The contractor operating expenses under the requirements of Cost Accounting Standard 410.

under Cost Accounting Standard 410 has been allocating his general and administrative expense pool to final cost objectives on a total cost input base in compliance with the Standard. The contractor's business changes substantially such that there are significant new projects which have only insignificant quantities of material. (b) After change: After the addition of the new work, an evaluation of the changed circumstances reveals that the continued use of a total cost input base would result in a significant distortion in the allocation of the G&A expense pool in relation to the benefits received. To remain in compliance with Standard 410, the contractor alters his G&A allocation base from a total cost input base to a value added base.

2. The contactor changes the accounting for hardware 2. (a) Before change: The contractor allocated the common to all projects.

3. The contractor merges operating segments A and B which use different cost accounting practices in accounting for manufacturing overhead costs.

cost of purchased or requisitioned hardware directly to projects.

(b) After change: The contractor charges the cost of purchased or requisitioned hardware to an indirect expense pool which is allocated to projects using an appropriate allocation base.

3. (a) Before change: In segment A, the costs of the manufacturing overhead pool have been allocated to final cost objectives using a direct labor hours base; in segment B, the costs of the manufacturing overhead pool have been allocated to final cost objectives using a direct labor dollars base.

(b) After change: As a result of the merger of operations, the combined segment decides to allocate the cost of the manufacturing overhead pool to all final cost objectives, using a direct labor dollars base. Thus, for those final cost objectives referred to in segment A, the cost of the manufacturing overhead pool will be allocated to the final cost objectives of segment A using a direct labor dollars base instead of a direct labor hours base.

(3) The following are illustrations of changes which do not meet the definition of "change to either a disclosed cost accounting practice or an established cost accounting practice," and accordingly do not require price adjustments under subparagraphs (a)(4) and (a)(5) of the CAS contract clause.

Description of change

Accounting treatment

1. Changes in the interest rate levels in the national 1. Adopting the increase (decrease) in the interest
economy have invalidated the prior actuarial as- rate actuarial assumption is not a change in cost
sumption with respect to anticipated investment accounting practice.
earnings. The pension plan administrators adopted
an increased (decreased) interest rate actuarial as-
sumption. The company allocated the resulting pen-
sion costs to all final cost objectives.

2. The basic benefit amount for a company's pension
plan is increased from $8 to $10 per year of credited
service. The change increases the dollar amount of
pension cost allocated to all final cost objectives.
3. A contractor who has never paid pensions estab-
lishes for the first time a pension plan. Pension costs
for the first year amounted to $3.5 million.

4. A contractor maintained a Deferred Incentive Com-
pensation Plan. After several years' experience, the
plan was determined not to be attaining its objective,
so it was terminated, and no future entitlements
were paid.

5. A contractor eliminates a segment that was operated for the purpose of doing research for development of products related to nuclear energy.

6. For a particular class of assets for which technological changes have rarely affected asset lives, a contractor starts with a five year average of historical lives to estimate future lives. He then considers technological changes and likely use. For the past several years the process resulted in an estimated future life of ten years for this class of assets. This year a technological change leads to a prediction of a useful life of seven years for the assets acquired this year for this class of assets.

7. The marketing department of a segment has reported directly to the general manager of the segment. The costs of the marketing department have been combined as part of the segment's G&A expense pool. The company reorganizes and requires the marketing department to report directly to a vice president at corporate headquarters.

(k) A "small business concern" is any concern, firm, person, corporation, partnership, cooperative or other business enterprise which pursuant to 15 U.S.C. 637(b)(6) and the rules and regulations of the Small Business Admin

2. The increase in the amount of the benefits is not a change in cost accounting practice.

3. The initial adoption of an accounting practice for the first time incurrence of a cost is not a change in cost accounting practice.

4. There was a termination of the Deferred Incentive Compensation Plan. Elimination of a cost is not a change in cost accounting practice.

5. The projects and expenses related to nuclear
energy projects have been terminated. No trans-
fer of these projects and no further work in this
area is planned. This is an elimination of cost
and not a change in cost accounting practice.
6. The change in estimate (not in method) is not a
change in cost accounting practice. The contrac-
tor has not changed the method or technique
used to determine the estimate. The methodolo-
gy applied has indicated a change in the estimat-
ed life, and this is not a change in cost account-
ing practice.

7. After the organizational change in the company's reporting structure, the parties agree that the appropriate recognition of the beneficial or causal relationship between the costs of the marketing department and the segment is to continue to combine these costs as part of the segment's G&A expense pool. Thus, the organizational change has not resulted in a change in cost accounting practice.

istration set forth in Part 121 of Title 13 of the Code of Federal Regulations, is determined to be a small business concern for the purpose of Government procurement.