We continue our discussion on the cost objective for direct material, direct labor, other direct costs, indirect costs, facilities cost of money, and profit/fee. This week we will focus on how this information should be communicated internally and externally. What information might be considered proprietary and why?
The reading material is:
Two videos to watch are:
Three types of manufacturing costs located at https://www.youtube.com/watch?v=bgp_AAxUJpQ
Cost of goods sold budget located at https://www.youtube.com/watch?v=HW0L8AfDIkE
Also, consider cost elements in term of direct or indirect? Can the material cost be classified different- hint CAS! Do we expect contractors to track an engine block the same as they would nuts and bolts?
FAR 15.407-4 provides for the opportunity to evaluate a manufacturing program based on what it SHOULD COST instead of evaluating a manufacturer on what it may have historically recorded for its Cost of Goods Sold (COGS) (FAR, 2016 (FAR 15.407-4)). Recall the Better Buying Power Initiatives, as Mr. Kendall says “don’t tell me what it will cost but what it should cost”. When a procurement activity involves non-commercial manufactures, and, when it is limited, or no competition for acquiring the product elsewhere in the marketplace a Should Cost Review may be performed (FAR, 2016 (FAR 15.407-4)). A Should Cost Review will look at both program (manufacturing) costs and the associated plant overhead; together, government and contractor can establish expectations of hard material costs, hard labor costs and manufacturing overhead, when combined will establish expected COGS for what can be considered a tiered manufacturing program specific to the effort being procured by the government (FAR, 2016 (FAR 15.407-4)).
In a prior class a student stated:
“As Contract Managers, it’s important that we know all the tools available to us that will allow us to effectively procure goods and services at fair and reasonable prices. Understanding manufacturing processes, accounting of a prime or tiered manufacturers COGS and means of establishing and evaluating a cost objective (such as utilizing SCI) will enable us to successfully negotiate procurement of goods and services on behalf of the taxpayer.”
Do you agree with the statement?