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089041 1 (1976-07-19)

handle is hein.gao/gaobacvba0001 and id is 1 raw text is: oUNITED STATES GENERAL ACCOUNTING OFFICE REGIONAL OFFICE ROOM 1903 JOHN F. KENNEDY FEDERAL EULLDING GOVERNMENT CENTER BOSTON, MASSACHUSETTS 02203 July 19, 1976 Mr. Arthur Schoenhautf Executive Secretary Cost Accounting Standards Board 441 G Street, H. W.asinton DO.= 20548llillllillililllil LMOB9041 Dear Mr. Schoenhaut: Enclosed is a draft of our report to Senator Proxrnire on our study of contractors' investment in work in process under selected fixed-price Government contracts. me are sending you a copy because of its relation- ship to the proposed cost accounting standard on the Cost of Money as an Element of the Cost of Capital. On December 5, 1975, the Cos Accounting Standards Board released a draft coat accounting standard on the Cost of Money as an Element of the Cost of Capital. With respect to operating capital, the Purpose i to estimate the average operating capital requirements of a contract by relating projected contract costs and profits to the time reqcuired to recover these costs and profits from the Government procursent activity or finance office. The contract operating capital will then become the base to which the cost of money will be applied. This will serve to reixbursa the contractor by imputing interest on his investment in the contract. The draft standard recognizes the possibility of using two distinct methods for computing the amount of operating capital allocable to a specific contract. The methods are the business unit average method and the specific contract mathod. The Board designed a oroposed form for the specific contract method. The form deals separately with costs andpprofits and allows for different contractual cost reimbursement or payment patterns. An adjustment factor was also devnloed Zor accotints payable. In our opinion, the many variables which influence contractor cash flow make it difficult to design an effective abbreviatcd form sucih as the one being Proposed by the Board. 1 .... ............1l

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