CAS 403 - Allocation of Home Office Expenses to Segments

Purpose

To establish criteria for allocation of the expenses of a home office to the segments based on the beneficial or causal relationship between such expenses and the receiving segments through:

• Identification of expenses for direct allocation to segments to the maximum extent practical;
• Accumulation of significant non-directly allocated expenses into logical and relatively homogeneous pools to be allocated on bases reflecting the relationship of the expenses to the segments; and
• Allocation of any remaining office expenses to all segments.

Requirements

• Home office expense shall be allocated on the basis of the beneficial or causal relationship between supporting and receiving activities.
• Centralized service functions, if not directly allocable, shall be allocated to segments on the basis of the service furnished to or received by each segment. (For example, centralized purchasing could be allocated by the number or value of orders for each segment.)
• Staff or line management, if not directly allocable, shall be allocated using bases representative of total activity being managed (e.g., manufacturing costs for manufacturing management).
• Central payment or accruals such as pension expenses, if not directly allocable, shall be allocated using an allocation base representative of the factors on which the total payment is based, such as payroll.
• Staff management such as the chief financial officer shall be allocated on a base representative of the segment’s total activity.

Applicability

• Applies under full coverage only. 48 CFR 9904.403