You are an accountant for a defense contractor. The federal government is considering a change of rules for the allocation of research and development costs. The government is asking contractors to submit a list of potential cost pools and allocation bases for activities within research and development. The government wants defense contractors to separate their research and development activities into several smaller cost pools with separate allocation bases.
Your research department performs a variety of different duties, including developing new designs for products, developing and testing new materials for use in these products, designing the manufacturing processes for new products, and redesigning old products and their manufacturing processes. In addition, the research and development department creates commercial uses for new technology that have been developed under government contracts.
A. List at least four potential research and development activities that could be used as the basis for separate cost pools within the research and development department.
B. List two or more potential cost allocation bases for each cost pool listed in part (A).
C. List factors that you might consider in making a choice about the cost pools and the allocation bases.