FINANCIAL MANAGEMENT POLICY MANUAL

programs to pay for potentially higher-than-anticipated prices. This
policy also allows NWCF activities to execute programs at the
budgeted level and, thus, permits effective utilization of NWCF
resources.
c. Accumulated Operating Result.
Prices for the budget year(s) will be set to recover total costs over the
long run. This means that prices will be set to achieve an accumulated
operating result in the budget year(s) of zero. During budget
execution, business areas will have either a positive or negative net
operating result. Accordingly, prices in the budget year will be set to
either make up actual/projected losses or to give back actual/projected
gains in the budget year(s).
6. REVENUE RECOGNITION.
To ensure consistency and comparability within and between business
areas, the percentage-of-completion is the only method used for nonsupply
NWCF activities. DOD 7000.14-R, Financial Management
Regulation, Volume 11B, Chapter 61 provides specific revenue guidance
by activity group.
7. CUSTOMER MANDATED SCHEDULE CHANGES.
When a job order is cancelled or reduced in scope after a NWCF activity
has commenced work or incurred costs on the order, the costs incurred,
plus the applied overhead (that is indirect and other normally allocated
overhead (G&A) costs), plus costs associated with the cancellation or
reduction shall be charged to the customer. Examples of directly
associated cancellation or reduction costs to be charged to customers are
advance planning costs, non-creditable direct material, special test
equipment, necessary preservation and/or shipment effort, and any
additional effort necessitated by the cancellation and/or reduction; for
example salvaging of material. In addition, costs charged to customers
should include the costs of salaries payable to employees hired specifically
to work on the cancelled order until the employees are or could have been
separated through a reduction in force or other appropriate action (taking
into account appropriate administrative lead time), or reassigned to other
direct jobs. Costs indirectly associated with the cancellation or reduction
actions shall not be charged to the customer. Although normally allocated
G&A costs shall be charged to cancelled or reduced customers orders,
under-applied overhead costs that may result in a NWCF activity as a
whole from a reduced workload base shall not be charged to the customer
canceling or reducing an order, but shall be recorded against the net
operating results of the performing NWCF activity.
8. MANAGEMENT HEADQUARTERS COSTS.
Costs for discrete NWCF management headquarters organizations, and
Financial Management Policy
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