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6.3  Accounting Considerations

Guideline 16
– Record Direct Costs

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a) Record direct costs in a manner consistent
with the budgets in a formal system controlled by the general books of account.

Direct cost
must be assigned to a project consistent with the pertinent budgets in order to
achieve effective performance management. A project’s cost-charging structure
established in the accounting system should help ensure that actual costs
collected are directly compared with associated budgets for that work.

 

Guideline 17
– Summarize Direct Costs by WBS Elements

b) When a work breakdown structure is used,
summarize direct costs from control accounts into the work breakdown structure
without allocation of a single control account to two or more work breakdown
structure elements.

Actual costs
need to be available at all levels of the WBS to support project management
with performance measurement data. Cost collection accounts mapped to the WBS.
The WBS roll-up structure contains no division/allocation of lower-level cost
to multiple higher-level WBS elements, which helps to ensure performance
measurement data integrity when summarized by WBS.

 

Guideline 18
– Summarize Direct Costs by OBS Elements

c) Summarize direct costs from the control
accounts into the contractor’s organizational elements without allocation of a
single control account to two or more organizational elements.

Actual costs
need to be available at all levels of the OBS to support project management
with performance measurement data. Cost collection accounts mapped to the OBS,
and the OBS roll-up structure containing no division/allocation of lower-level
cost to multiple higher-level OBS elements, helps to ensure performance
measurement data integrity when it is summarized by OBS.

 

Guideline 19
– Record/Allocate Indirect Costs

d) Record all indirect costs which will be
allocated to the program consistent with the overhead budgets.

Visibility
into direct and indirect costs is essential for successful management of a
project. Therefore, it is important to have a documented process and
organizations established specifically to manage and control indirect costs.

 

Guideline 20
– Identify Unit and Lot Costs

e) Identify unit costs, equivalent unit costs,
or lot costs when needed.

A
manufacturing accounting system capable of isolating unit and lot costs in a
production environment should allow the flexibility to plan, measure
performance, and forecast in a more efficient way when there are multiple
projects in the same production line.

When using
equivalent units, or lot costs budgeting, ensure that the accounting system
produces actual unit, equivalent unit, or lot costs for purposes of measuring
cost performance. Typically, this is accomplished by using a charge number
structure, the manufacturing planning systems, or equivalent capability. On
production contracts or projects where multiple similar units are being
delivered, or when units are taken off the line in more or less a random order
according to the delivery agreements of the different customer’s projects, it
is sufficient to establish “equivalent unit cost” (i.e. all things being equal,
each unit’s cost is approximately equivalent to every other unit’s cost).

 

Guideline 21
– Track and Report Material Costs and Quantities

f) For EVMS, the material accounting system
will provide for:

·        
Accurate cost accumulation and assignment of
costs to control accounts in a manner consistent with the budgets using recognized,
acceptable, costing techniques.

·        
Cost recorded for accomplishing work
performed in the same period that earned value is measured and at the point in
time most suitable for the category of material involved, but no earlier than
the time of actual receipt of material.

·        
Full accountability of all material purchased
for the project including the residual inventory.

The
establishment of a valid comparison of planned material costs for completed
work with the actual material costs for that work provides the basis for
realistic evaluation of cost deviations and ultimately facilitates cost at
complete projections. Residual inventory provides visibility into excess
material for the current deliverables available for replacement of failures in
the current project or future projects having similar deliverables.

Long lead
critical material items may require special considerations for planning and
measuring progress. Contracting methods should be considered that support
objectives and promote the use of progress methods to meet the needs of
integrated program management.

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