The ACME Corporation is a large corporation with numerous multi-million contract
ID: 2765665 • Letter: T
Question
The ACME Corporation is a large corporation with numerous multi-million contracts with the Federal Government. It has a long standing good relationship with the U.S. Government. One of its current contracts with the Government is for 3,000 heavily armored vehicles for patrol duties in Iraq. The new DOD budget has eliminated the funds for the armored vehicles. As required, the ACME contract for the armored vehicles is terminated for the convenience of the Government. ACME had a recently hired deputy controller at the division which was producing the armored vehicle. Archibald, the deputy controller, while new to the company knew that settlements on contracts terminated for convenience were generally generous. Archie was only generally familiar with FAR.31-205, but issued an order that the following costs should be charged to the termination claim. The costs attributed to the loss of useful value of the new building, idle facilities, that had been built to increase the production of the vehicle, and which would now be vacant for some time, although it was suitable for other uses. The costs of several bad debts that the company had accrued. The cost of advertising, such as newspaper ads and television ads extolling the value of the vehicle to the War in Iraq and to the company in general. The costs of gathering up contract materials and equipment of the terminated contract. The costs of lobbying effort to Congress in support of keeping the program from being terminated. The costs of a large company gathering at a Marriott Hotel in the city, where alcoholic beverages were served at an open bar.
In some detail, give your evaluation of the appropriateness of Archie’s order in light of the increased revenue (and hopefully profit) such an order might provide in relation to the good will such an order might damage.
Explanation / Answer
31.205-1 PUBLIC RELATIONS AND ADVERTISING COSTS
-Did the company advertise in newspapers, magazines, on radio, etc. for other than help wanted?
-Is the company involved in trade shows, exhibit booths, etc. relative to the products and/or services the company offers?
Following below analysis:
The costs attributed to the loss of useful value of the new building, idle facilities, that had been built to increase the production of the vehicle, and which would now be vacant for some time, although it was suitable for other uses.
To consider above costs that would have incurred on the time spent( days, month , year etc) on manufacturing the armoured vehicle
The costs of several bad debts that the company had accrued.
Bad debts on other products cannot be attributed to the loss of sales / termination of the contract
The cost of advertising, such as newspaper ads and television ads extolling the value of the vehicle to the War in Iraq and to the company in general.
Costs can be considered only to the extent of the portion attributable to the particular contract
The costs of gathering up contract materials and equipment of the terminated contract.
Full cost will be considered unless it has alternative use then a proportion to be calculated and charged
The costs of lobbying effort to Congress in support of keeping the program from being terminated.
Only that portion should be estimated that is relevant to the contract
The costs of a large company gathering at a Marriott Hotel in the city, where alcoholic beverages were served at an open bar.
Only that portion should be estimated that is relevant to the contract
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