Question

For a cost to be considered allocable to a contract, it must be a cost that is incurred specifically for a contract, or a cost that is beneficial to both the contract and other work, or _________________. [Identify the five bases for cost allowability.]
a. A cost that is necessary for the overall operation of the business but not directly related to a contract
b. Any cost incurred by a contractor doing business with the Government
c. Any cost that is exempt from compliance with Government and industry accounting standards
d. Any indirect cost that is not part of the manufacturing overhead cost pool

Answer 1

Answer:

a. A cost that is necessary for the overall operation of the business but not directly related to a contract

Explanation:

Option B - Allocable costs cannot be considered if the contractor is doing business with the government.

Option C - If the cost is exempted, it cannot be specifically allowable for a contract, or a cost that is beneficial to both the contract and other work.

Option D - Indirect costs cannot be allowable.

Option A - It is the right answer because allowable cost should be significant for the operations with an indirect relation with the contract. If it is linked with the overall operations, it can be considered as allowable to a contract.