Submitting both the electronic copy and the hard copy will delay the processing of your proposal. Yes, but only if these depreciation expenses are related to assets used by indirect-related personnel (i.e., accounting, human resources, etc.) and are purchased with non-federal dollars. Depreciation related to assets used by direct personnel should be direct-charged. For example, if the cost of renting an office space is $5,000, the amount charged remains constant whether 100 or 1,000 products are sold. The general expenses related to the day-to-day operations are called “indirect” costs. The spending by a company directly tied to producing its product offerings are collectively defined as “direct” costs.

An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures. The indirect costs in the numerator of the equation should bear a reasonable relationship to the direct https://www.bookstime.com/articles/revenue-recognition-principle costs from the denominator. This will allow for each program or activity represented in the direct costs base to assume their fair share of indirect costs when the rate is applied. Indirect costs are costs that are not directly related to a specific cost object like a function, product or department.

Who do we contact to obtain clarification or interpretation on the cost principles for federal awards (2 CFR ?

The other are recurring indirect costs, which repeat for a particular company, like maintenance of records or the payment of salaries. Understanding the distinction between direct costs and indirect costs is necessary to properly keep track of a company’s expenses, as well as for pricing products appropriately. Most of the time, the funding for a particular project will primarily support the project’s direct costs. Certain government agencies may allow you to explain why indirect costs should also be funded. Still, ultimately, the decision to provide funding rests with the agency.

Cost structure refers to the various types of expenses a business incurs and is typically composed of fixed and variable costs. Fixed costs are costs that remain unchanged regardless of the amount of output a company produces, while variable costs change with production volume. An indirect cost rate is simply a device for determining fairly and expeditiously the proportion of general (non-direct) expenses that each project will bear. It is the ratio between the total indirect costs of an applicant and some equitable direct cost base.

We submitted the proposal to Indirect Cost Services and the funding agency wants a confirmation, what should we do?

While direct labor comprises work done on specific products or services, indirect labor is employee work that can’t be traced back or billed to services or goods produced. The distribution base chosen should result in each award bearing a proportionate share of the indirect costs relative to the benefits received from those costs. For example, if several of your programs and grants do not pay salaries, then it might not be a good idea to use total salaries and wages as the direct cost base. If you do, those programs paying most of the salaries and wages would bear a larger, disproportionate share of the indirect costs.

Since indirect labor cannot be traced back to a specific product or service, the related cost can’t be billed to the goods produced or the services rendered. It represents the overhead to the business needed to support the level of operations. Businesses that intend to profit typically consider “fringe benefits,” such as paid time off and using a company car, to be indirect costs. Indirect costs include the materials and supplies required for a company’s day-to-day operations. Although these things benefit the company, they do not directly contribute to producing any particular product or service.

What is a Predetermined Rate?

In this situation, it might be more appropriate to use modified total direct costs (exclusive of unusual or distorting expenditures). Please consult the Indirect Cost Services office if you need additional guidance. A Provisional rate is a temporary indirect costs are also known as indirect cost rate that is applied to a limited time period that is used until a “final” rate is established for that same period. Provisional rates can be used for funding, interim reimbursement, and reporting of indirect costs on federal awards.

A final rate is an indirect cost rate applicable to a specific time period that is based on the actual, allowable costs of that period. An indirect cost rate is a tool for determining the proportion of indirect costs each program should bear. It is the ratio (expressed as a percentage) of the indirect costs to a direct cost base.