CLC 056 – Analyzing Contract Costs: Mastery
Assessment Actual Exam – Complete
Questions and Answers with Detailed
Rationales – Pass Guaranteed – A+ Graded
Section 1: Cost Principles – FAR Part 31, Allowable vs. Unallowable Costs
Q1: Under FAR Part 31, a cost must meet four specific standards to be considered
allowable for reimbursement. Which of the following best describes the standard of
"allocability"?
A. A cost is allocable if it is commonly incurred by other government contractors in the
same industry.
B. A cost is allocable if it is assigned to a contract in accordance with the relative
benefits received.
C. A cost is allocable if it is specifically identified as a direct charge in the contractor's
disclosure statement.
D. A cost is allocable if it does not exceed the amount a prudent person would pay in a
competitive market.
Correct Answer: B
Rationale: This choice is correct because FAR 31.201-4 defines allocability as assigning
a cost to a contract or other cost objective in accordance with the relative benefits
received, which is a fundamental cost principle distinct from reasonableness.
Q2: When evaluating whether a proposed cost is reasonable, a contracting officer
applies the "prudent person" test. What does this standard actually look at?
A. Whether the cost was incurred using standard government procurement regulations
B. Whether a prudent person would have purchased the exact same brand of
equipment
C. Whether a prudent person would have incurred the cost at the time the decision was
made
D. Whether the cost is lower than the average of three independent commercial quotes
Correct Answer: C
Rationale: This matches the FAR Part 31 standard that a cost is reasonable if, at the
time it was incurred, its nature and amount do not exceed what a prudent person would
pay given the market conditions and circumstances.
,Q3: A contractor proposes a cost for a holiday party for employees, including catering, a
DJ, and decorations. Under FAR Part 31, how should this cost be treated?
A. Allowable, because employee morale events are explicitly permitted as long as they
occur annually.
B. Unallowable, because costs of amusement, diversions, and social activities are
strictly unallowable.
C. Allowable, because the party is held on company property and only benefits direct
labor employees.
D. Unallowable, only if alcohol is served at the event; otherwise, it is fully allowable.
Correct Answer: B
Rationale: The best answer is B because FAR 31.205-13 explicitly lists costs of
amusement, diversions, social activities, and any directly associated costs as
unallowable, which covers standard holiday parties regardless of location or guest list.
Q4: During a proposal review, you notice the contractor has included $5,000 for
"donations to local charities." The contractor argues this is standard corporate practice
and improves their community image. How should you treat this cost?
A. Allowable, if the donations are tax-deductible and documented properly.
B. Unallowable, because charitable contributions are specifically identified as
unallowable under FAR 31.205-8.
C. Allowable, if the charity directly benefits the local military installation where the work
is performed.
D. Unallowable, only if the total charitable contributions exceed 1% of the contract
value.
Correct Answer: B
Rationale: This aligns with the FAR Part 31 standard that explicitly prohibits charitable
contributions as unallowable costs, regardless of the perceived public relations benefit
or tax status.
Q5: A defense contractor's CEO received a total compensation package of $1.2 million
last year, and the company has proposed this exact amount as a direct labor cost for
the upcoming fiscal year. What is your primary concern regarding allowability under FAR
31.205-6?
A. Compensation is unallowable if it exceeds the median salary for CEOs in the defense
industrial base.
B. Compensation is allowable in full, as executive pay is strictly an internal corporate
matter.
C. Compensation is subject to statutory caps for certain higher-tier contractor
employees, which may render the excess unallowable.
D. Compensation is unallowable if it includes non-cash benefits like stock options or
health insurance.
, Correct Answer: C
Rationale: This choice is correct because FAR 31.205-6 references statutory limitations
on executive compensation, meaning costs exceeding specifically defined benchmark
thresholds cannot be charged to government contracts.
Q6: A contractor includes a line item for $15,000 in "bad debt expenses" on a
cost-reimbursement proposal. They argue that since the government is one of their
clients, the government indirectly shares the risk of client defaults. How is this cost
treated?
A. Allowable, but only if the bad debts are directly tied to subcontracts that went
bankrupt.
B. Unallowable, because bad debt expenses are expressly prohibited under FAR
31.205-43.
C. Allowable, if the contractor can prove the bad debt was not caused by their own poor
management.
D. Unallowable, unless the Contracting Officer specifically approves it in writing as a
unique risk.
Correct Answer: B
Rationale: This matches the FAR Part 31 standard that bad debts are unallowable,
meaning the government does not share in the contractor's credit risk or the cost of
clients failing to pay their bills.
Q7: Your team is reviewing a negotiated contract and finds that the contractor included
$4,000 for lobbying efforts to promote a piece of legislation that could favor their
product. How should this be handled?
A. The cost is unallowable and must be specifically identified in the price negotiation
memorandum.
B. The cost is allowable if the legislation applies generally to the defense industry and
not just the contractor.
C. The cost is unallowable but does not need to be mentioned in the price negotiation
memorandum since it was excluded from the final price.
D. The cost is allowable if the contractor used internal employees rather than hiring an
external lobbying firm.
Correct Answer: A
Rationale: The best answer is A because FAR 31.205-22 makes lobbying costs
unallowable, and the contracting officer must identify and quantify all unallowable costs
in the price negotiation memorandum to ensure they are excluded from the negotiated
price.
Assessment Actual Exam – Complete
Questions and Answers with Detailed
Rationales – Pass Guaranteed – A+ Graded
Section 1: Cost Principles – FAR Part 31, Allowable vs. Unallowable Costs
Q1: Under FAR Part 31, a cost must meet four specific standards to be considered
allowable for reimbursement. Which of the following best describes the standard of
"allocability"?
A. A cost is allocable if it is commonly incurred by other government contractors in the
same industry.
B. A cost is allocable if it is assigned to a contract in accordance with the relative
benefits received.
C. A cost is allocable if it is specifically identified as a direct charge in the contractor's
disclosure statement.
D. A cost is allocable if it does not exceed the amount a prudent person would pay in a
competitive market.
Correct Answer: B
Rationale: This choice is correct because FAR 31.201-4 defines allocability as assigning
a cost to a contract or other cost objective in accordance with the relative benefits
received, which is a fundamental cost principle distinct from reasonableness.
Q2: When evaluating whether a proposed cost is reasonable, a contracting officer
applies the "prudent person" test. What does this standard actually look at?
A. Whether the cost was incurred using standard government procurement regulations
B. Whether a prudent person would have purchased the exact same brand of
equipment
C. Whether a prudent person would have incurred the cost at the time the decision was
made
D. Whether the cost is lower than the average of three independent commercial quotes
Correct Answer: C
Rationale: This matches the FAR Part 31 standard that a cost is reasonable if, at the
time it was incurred, its nature and amount do not exceed what a prudent person would
pay given the market conditions and circumstances.
,Q3: A contractor proposes a cost for a holiday party for employees, including catering, a
DJ, and decorations. Under FAR Part 31, how should this cost be treated?
A. Allowable, because employee morale events are explicitly permitted as long as they
occur annually.
B. Unallowable, because costs of amusement, diversions, and social activities are
strictly unallowable.
C. Allowable, because the party is held on company property and only benefits direct
labor employees.
D. Unallowable, only if alcohol is served at the event; otherwise, it is fully allowable.
Correct Answer: B
Rationale: The best answer is B because FAR 31.205-13 explicitly lists costs of
amusement, diversions, social activities, and any directly associated costs as
unallowable, which covers standard holiday parties regardless of location or guest list.
Q4: During a proposal review, you notice the contractor has included $5,000 for
"donations to local charities." The contractor argues this is standard corporate practice
and improves their community image. How should you treat this cost?
A. Allowable, if the donations are tax-deductible and documented properly.
B. Unallowable, because charitable contributions are specifically identified as
unallowable under FAR 31.205-8.
C. Allowable, if the charity directly benefits the local military installation where the work
is performed.
D. Unallowable, only if the total charitable contributions exceed 1% of the contract
value.
Correct Answer: B
Rationale: This aligns with the FAR Part 31 standard that explicitly prohibits charitable
contributions as unallowable costs, regardless of the perceived public relations benefit
or tax status.
Q5: A defense contractor's CEO received a total compensation package of $1.2 million
last year, and the company has proposed this exact amount as a direct labor cost for
the upcoming fiscal year. What is your primary concern regarding allowability under FAR
31.205-6?
A. Compensation is unallowable if it exceeds the median salary for CEOs in the defense
industrial base.
B. Compensation is allowable in full, as executive pay is strictly an internal corporate
matter.
C. Compensation is subject to statutory caps for certain higher-tier contractor
employees, which may render the excess unallowable.
D. Compensation is unallowable if it includes non-cash benefits like stock options or
health insurance.
, Correct Answer: C
Rationale: This choice is correct because FAR 31.205-6 references statutory limitations
on executive compensation, meaning costs exceeding specifically defined benchmark
thresholds cannot be charged to government contracts.
Q6: A contractor includes a line item for $15,000 in "bad debt expenses" on a
cost-reimbursement proposal. They argue that since the government is one of their
clients, the government indirectly shares the risk of client defaults. How is this cost
treated?
A. Allowable, but only if the bad debts are directly tied to subcontracts that went
bankrupt.
B. Unallowable, because bad debt expenses are expressly prohibited under FAR
31.205-43.
C. Allowable, if the contractor can prove the bad debt was not caused by their own poor
management.
D. Unallowable, unless the Contracting Officer specifically approves it in writing as a
unique risk.
Correct Answer: B
Rationale: This matches the FAR Part 31 standard that bad debts are unallowable,
meaning the government does not share in the contractor's credit risk or the cost of
clients failing to pay their bills.
Q7: Your team is reviewing a negotiated contract and finds that the contractor included
$4,000 for lobbying efforts to promote a piece of legislation that could favor their
product. How should this be handled?
A. The cost is unallowable and must be specifically identified in the price negotiation
memorandum.
B. The cost is allowable if the legislation applies generally to the defense industry and
not just the contractor.
C. The cost is unallowable but does not need to be mentioned in the price negotiation
memorandum since it was excluded from the final price.
D. The cost is allowable if the contractor used internal employees rather than hiring an
external lobbying firm.
Correct Answer: A
Rationale: The best answer is A because FAR 31.205-22 makes lobbying costs
unallowable, and the contracting officer must identify and quantify all unallowable costs
in the price negotiation memorandum to ensure they are excluded from the negotiated
price.
