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Savi Technology: Indirect Costs and Job Costing

Authors: Steven Huddart and Bacilio Palomo

This case examines the accounting system of a small company that produces customized electronic equipment under cost-plus federal procurement contracts as well as fixed-price commercial agreements. The facts in the case are drawn from a high technology start-up company headquartered in Palo Alto, California.

Principal issues for discussion are:

  • the extent to which the structure of the accounting system (chart of accounts, cost pools, and allocation bases) is determined by government procurement regulations;

  • the appropriateness of a government-mandated cost model for internal decision-making purposes;

  • the incentives created by the accounting system to subcontract work associated with cost-plus contracts and to undertake in-house work associated with fixed-price contracts;

  • the difficulty of determining the profitability of individual contracts, even in a small industrial concern;

  • the differences among cost categorizations for different business purposes, like financial reporting, reporting to government auditors, and internal decision-making (e.g., costs may be treated as inventoriable for one purpose, but may be treated as period costs for another purpose).

Subject(s): Auditing; Cost allocation; Government agencies; High technology; Research and development; SBIR

Setting Information: Geographic Setting: California Industry Setting: computer devices Number of Employees: 50 Case Time Frame Start: 1992 Case Time Frame End: 1992

Supplemental Material(s): Teaching note, (A156T), 6p, Huddart, Steven

Type: Case (Field) Publication Date: 7/1/94 Product Number: A156 Length: 20p Source: Stanford University


Savi has been tremendously successful. Rob Reis sold Savi to Texas Instruments in the mid-1990s. Lockheed/Martin acquired it from Texas Instruments in 2003. It is a standalone, profitable $500MM business for Lockheed Martin in 2010.

Here is a video clip of Vic Verma of Savi describing the Internet of Things at Stanford University in 2004. Here is another link to the Vic Verma Savi clip.

Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
(814) 863-0048
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