CAS 407 Is Rescinded. Standard Cost Requirements Move Into CAS 418.

What changed

The Cost Accounting Standards Board published a final rule on 1 September 2026 rescinding Cost Accounting Standard 407, Use of Standard Costs for Direct Material and Direct Labor (91 FR 56061, RIN 0348-AB91). Subpart 9904.407 is removed and reserved. The rule is effective 1 October 2026 and follows a proposed rule at 91 FR 13562 (20 March 2026).

This is part of the Board's CAS-to-GAAP conformance work under 41 U.S.C. 1501(c). The Board concluded that GAAP, as codified by the FASB Accounting Standards Codification, together with CAS 401 and the 9903.201-4 contract clauses, now covers nearly everything CAS 407 covered when it was written more than 50 years ago. By the Board's count the rule eliminates 12 of the 16 individual requirements in CAS 407 and removes almost 2,000 words of regulatory text.

What survives is the production-unit content GAAP does not address. The definition of production unit moves to 9904.418-30(a)(5). A new 9904.418-50(h) carries forward the rules on setting a labor-rate standard for a group of workers performing disparate functions, and on disposition of variances accumulated by production unit, either allocated to cost objectives at least annually on the stated bases, or, where immaterial, included in indirect cost pools. A new illustration is added at 9904.418-60(j). In 9903.301(a), the definitions of labor cost at standard, labor-rate standard, labor-time standard, material cost at standard, material-price standard, material-quantity standard, standard cost and variance are removed, and actual cost and production unit now cross-reference 9904.401-30 and 9904.418-30.

Why it matters for estimating and pricing

Anyone citing CAS 407 in a disclosure statement, a basis of estimate, a compliance matrix or an audit response needs to repoint those citations to 9904.418 as of 1 October 2026. The substantive treatment of standard costs and variances at the production unit level does not change; the location of the authority does.

Two points from the comment responses are worth noting. The Board states it identified no instance where rescinding CAS 407 would itself change a contractor's disclosed cost accounting practice, and that any current or future change related to standard costing of direct material or labor, or to variance treatment, is therefore a unilateral change under 9903.201-6(b)(2) rather than a required or desirable one. That distinction determines who absorbs the price adjustment. The Board also confirmed that a change such as moving from FIFO to LIFO still has to be disclosed, pointing to CASB DS-1 section 2.2.2 and 41 U.S.C. 1502(f)(1).

Primary sources

Final rule, Conformance of Cost Accounting Standards to Generally Accepted Accounting Principles for CAS 407 Use of Standard Costs for Direct Material and Direct Labor, 91 FR 56061 (1 September 2026), FR Doc. 2026-17903: https://www.federalregister.gov/d/2026-17903

Amended text at 48 CFR parts 9903 and 9904.