31.001 Definitions.

As used in this partAccrued benefit cost method means an actuarial cost method under which units of benefits are

assigned to each cost accounting period and are valued as they accrue; i.e., based on the services

performed by each employee in the period involved. The measure of normal cost under this method

for each cost accounting period is the present value of the units of benefit deemed to be credited to

employees for service in that period. The measure of the actuarial accrued liability at a plan’s

inception date is the present value of the units of benefit credited to employees for service prior to

that date. (This method is also known as the unit credit cost method without salary projection.).

Accumulating costs means collecting cost data in an organized manner, such as through a system of

accounts.

Actual cash value means the cost of replacing damaged property with other property of like kind and

quality in the physical condition of the property immediately before the damage.

Actual costs means (except for subpart 31.6) amounts determined on the basis of costs incurred, as

distinguished from forecasted costs. Actual costs include standard costs properly adjusted for

applicable variances.

Actuarial accrued liability means pension cost attributable, under the actuarial cost method in use,

to years prior to the current period considered by a particular actuarial valuation. As of such date,

the actuarial accrued liability represents the excess of the present value of future benefits and

administrative expenses over the present value of future normal costs for all plan participants and

beneficiaries. The excess of the actuarial accrued liability over the actuarial value of the assets of a

pension plan is the unfunded actuarial liability. The excess of the actuarial value of the assets of a

pension plan over the actuarial accrued liability is an actuarial surplus and is treated as a negative

unfunded actuarial liability.

Actuarial assumption means an estimate of future conditions affecting pension cost; e.g., mortality

rate, employee turnover, compensation levels, earnings on pension plan assets, and changes in

values of pension plan assets.

Actuarial cost method means a technique which uses actuarial assumptions to measure the present

value of future pension benefits and pension plan administrative expenses, and that assigns the cost

of such benefits and expenses to cost accounting periods. The actuarial cost method includes the

asset valuation method used to determine the actuarial value of the assets of a pension plan.

Actuarial gain and loss means the effect on pension cost resulting from differences between

actuarial assumptions and actual experience.

Actuarial valuation means the determination, as of a specified date, of the normal cost, actuarial

accrued liability, actuarial value of the assets of a pension plan, and other relevant values for the

pension plan.

Allocate means to assign an item of cost, or a group of items of cost, to one or more cost objectives.

This term includes both direct assignment of cost and the reassignment of a share from an indirect

cost pool.
Compensated personal absence means any absence from work for reasons such as illness, vacation,

holidays, jury duty, military training, or personal activities for which an employer pays compensation

directly to an employee in accordance with a plan or custom of the employer.

Compensation for personal services means all remuneration paid currently or accrued, in whatever

form and whether paid immediately or deferred, for services rendered by employees to the

contractor.

Cost input means the cost, except general and administrative (G&A) expenses, which for contract

costing purposes is allocable to the production of goods and services during a cost accounting

period.

Cost objective means (except for subpart 31.6) a function, organizational subdivision, contract, or

other work unit for which cost data are desired and for which provision is made to accumulate and

measure the cost of processes, products, jobs, capitalized projects, etc.

Deferred compensation means an award made by an employer to compensate an employee in a

future cost accounting period or periods for services rendered in one or more cost accounting

periods before the date of the receipt of compensation by the employee. This definition shall not

include the amount of year end accruals for salaries, wages, or bonuses that are to be paid within a

reasonable period of time after the end of a cost accounting period.

Defined-benefit pension plan means a pension plan in which the benefits to be paid, or the basis for

determining such benefits, are established in advance and the contributions are intended to provide

the stated benefits.

Defined-contribution pension plan means a pension plan in which the contributions to be made are

established in advance and the benefits are determined thereby.

Directly associated cost means any cost which is generated solely as a result of the incurrence of

another cost, and which would not have been incurred had the other cost not been incurred.

Estimating costs means the process of forecasting a future result in terms of cost, based upon

information available at the time.

Expressly unallowable cost means a particular item or type of cost which, under the express

provisions of an applicable law, regulation, or contract, is specifically named and stated to be

unallowable.

Final cost objective means (except for subparts 31.3 and 31.6) a cost objective that has allocated to

it both direct and indirect costs and, in the contractor’s accumulation system, is one of the final

accumulation points.

Fiscal year means the accounting period for which annual financial statements are regularly

prepared, generally a period of 12 months, 52 weeks, or 53 weeks.

Funded pension cost means the portion of pension cost for a current or prior cost accounting period

that has been paid to a funding agency.

Home office means an office responsible for directing or managing two or more, but not necessarily

all, segments of an organization. It typically establishes policy for, and provides guidance to, the

segments in their operations. It usually performs management, supervisory, or administrative

functions, and may also perform service functions in support of the operations of the various
segments. An organization which has intermediate levels, such as groups, may have several home

offices which report to a common home office. An intermediate organization may be both a segment

and a home office.

Immediate-gain actuarial cost method means any of the several actuarial cost methods under which

actuarial gains and losses are included as part of the unfunded actuarial liability of the pension plan,

rather than as part of the normal cost of the plan.

Independent research and development (IR&D) cost means the cost of effort which is neither

sponsored by a grant, nor required in performing a contract, and which falls within any of the

following four areas-

(a) Basic research,

(b) Applied research,

(c) Development, and

(d) Systems and other concept formulation studies.

Indirect cost pools means (except for subparts 31.3 and 31.6) groupings of incurred costs identified

with two or more cost objectives but not identified specifically with any final cost objective.

Insurance administration expenses means the contractor’s costs of administering an insurance

program; e.g., the costs of operating an insurance or risk-management department, processing

claims, actuarial fees, and service fees paid to insurance companies, trustees, or technical

consultants.

Intangible capital asset means an asset that has no physical substance, has more than minimal

value, and is expected to be held by an enterprise for continued use or possession beyond the

current accounting period for the benefits it yields.

Job means a homogeneous cluster of work tasks, the completion of which serves an enduring

purpose for the organization. Taken as a whole, the collection of tasks, duties, and responsibilities

constitutes the assignment for one or more individuals whose work is of the same nature and is

performed at the same skill/responsibility level-as opposed to a position, which is a collection of

tasks assigned to a specific individual. Within a job, there may be pay categories which are

dependent on the degree of supervision required by the employee while performing assigned tasks

which are performed by all persons with the same job.

Job class of employees means employees performing in positions within the same job.

Labor cost at standard means a preestablished measure of the labor element of cost, computed by

multiplying labor-rate standard by labor-time standard.

Labor market means a place where individuals exchange their labor for compensation. Labor

markets are identified and defined by a combination of the following factors-

(1) Geography,

(2) Education and/or technical background required,

(3) Experience required by the job,
(4) Licensing or certification requirements,

(5) Occupational membership, and

(6) Industry.

Labor-rate standard means a preestablished measure, expressed in monetary terms, of the price of

labor.

Labor-time standard means a preestablished measure, expressed in temporal terms, of the quantity

of labor.

Material cost at standard means a preestablished measure of the material elements of cost,

computed by multiplying material-price standard by material-quantity standard.

Material-price standard means a preestablished measure, expressed in monetary terms, of the price

of material.

Material-quantity standard means a preestablished measure, expressed in physical terms, of the

quantity of material.

Moving average cost means an inventory costing method under which an average unit cost is

computed after each acquisition by adding the cost of the newly acquired units to the cost of the

units of inventory on hand and dividing this figure by the new total number of units.

Nonqualified pension plan means any pension plan other than a qualified pension plan as defined in

this part.

Normal cost means the annual cost attributable, under the actuarial cost method in use, to current

and future years as of a particular valuation date excluding any payment in respect of an unfunded

actuarial liability.

Original complement of low cost equipment means a group of items acquired for the initial outfitting

of a tangible capital asset or an operational unit, or a new addition to either. The items in the group

individually cost less than the minimum amount established by the contractor for capitalization for

the classes of assets acquired but in the aggregate they represent a material investment. The group,

as a complement, is expected to be held for continued service beyond the current period. Initial

outfitting of the unit is completed when the unit is ready and available for normal operations.

Pay-as-you-go cost method means a method of recognizing pension cost only when benefits are paid

to retired employees or their beneficiaries.

Pension plan means a deferred compensation plan established and maintained by one or more

employers to provide systematically for the payment of benefits to plan participants after their

retirements, provided that the benefits are paid for life or are payable for life at the option of the

employees. Additional benefits such as permanent and total disability and death payments, and

survivorship payments to beneficiaries of deceased employees, may be an integral part of a pension

plan.

Pension plan participant means any employee or former employee of an employer or any member or

former member of an employee organization, who is or may become eligible to receive a benefit

from a pension plan which covers employees of such employer or members of such organization who

have satisfied the plan’s participation requirements, or whose beneficiaries are receiving or may be
eligible to receive any such benefit. A participant whose employment status with the employer has

not been terminated is an active participant of the employer’s pension plan.

Profit center means (except for subparts 31.3 and 31.6) the smallest organizationally independent

segment of a company charged by management with profit and loss responsibilities.

Projected benefit cost method means either-

(1) Any of the several actuarial cost methods that distribute the estimated total cost of all of the

employees’ prospective benefits over a period of years, usually their working careers; or

(2) A modification of the accrued benefit cost method that considers projected compensation levels.

Proposal means any offer or other submission used as a basis for pricing a contract, contract

modification, or termination settlement or for securing payments thereunder.

Qualified pension plan means a pension plan comprising a definite written program communicated

to and for the exclusive benefit of employees that meets the criteria deemed essential by the Internal

Revenue Service as set forth in the Internal Revenue Code for preferential tax treatment regarding

contributions, investments, and distributions. Any other plan is a nonqualified pension plan.

Self-insurance charge means a cost which represents the projected average loss under a selfinsurance plan.

Service life means the period of usefulness of a tangible capital asset (or group of assets) to its

current owner. The period may be expressed in units of time or output. The estimated service life of

a tangible capital asset (or group of assets) is a current forecast of its service life and is the period

over which depreciation cost is to be assigned.

Spread-gain actuarial cost method means any of the several projected benefit actuarial cost methods

under which actuarial gains and losses are included as part of the current and future normal costs of

the pension plan.

Standard cost means any cost computed with the use of preestablished measures.

Tangible capital asset means an asset that has physical substance, more than minimal value, and is

expected to be held by an enterprise for continued use or possession beyond the current accounting

period for the services it yields.

Termination of employment gain or loss means an actuarial gain or loss resulting from the difference

between the assumed and actual rates at which pension plan participants separate from employment

for reasons other than retirement, disability, or death.

Variance means the difference between a preestablished measure and an actual measure.

Weighted average cost means an inventory costing method under which an average unit cost is

computed periodically by dividing the sum of the cost of beginning inventory plus the cost of

acquisitions by the total number of units included in these two categories.

Welfare benefit fund means a trust or organization which receives and accumulates assets to be

used either for the payment of postretirement benefits, or for the purchase of such benefits,

provided such accumulated assets form a part of a postretirement benefit plan.
Parent topic: Part 31 - Contract Cost Principles and Procedures