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System Procedures
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These guidelines provide more detail to assist colleges and universities in the allocation of costs, both direct and indirect. These guidelines may be of assistance as colleges and universities develop their individual procedures to implement the system procedure. While these guidelines are generally not prescriptive, the journal entry instructions must be followed. |
The institution must establish a procedure for allocating direct and indirect cost (per System Procedure 7.3.4) to business activities. These procedures should include the process for determining whether such business activities will be charged for their share of direct and indirect costs or whether another source, usually the General Fund, will either partially or in total, subsidize direct and indirect costs.
Colleges and universities must allocate costs to auxiliary and C/NCI (Credit / Non-Credit Instruction) activities and are strongly encouraged to allocate costs to other business activities such as, but not limited to, parking, child care services and various summer camps. For example, the institution may decide to charge the bookstore for direct cost items but choose to subsidize the indirect cost items. Regardless of the determination, the bookstore accounts will now display, and financial reports will include, all direct and indirect costs associated with the operation.
Optional allocation methods for both direct and indirect costs. (Attachment 1 - in PDF format)
Attachment 1 provides suggestions of most commonly used methods/bases for allocation but any reasonable, accepted method may be used.
Also provided is a discussion of alternate cost allocation concepts. These discuss the use of the step-down method of cost allocation or the simpler single step method. These are both acceptable methods.
Attached to this guideline are two documents, Attachment 2.1 (in PDF format) - "Required Transactions - Journal Entries - Direct and Indirect Cost Allocation" and Attachment 2.2 (in PDF format) - "Required Transactions - Cost Subsidy Option - Journal Entries Direct and Indirect Cost Allocation". The attachments represent transactions institutions need to complete for the required cost allocation process. Institutions using the Cost Allocation and Consumable Inventory modules can use these modules to manage transactions except for subsidies, direct or indirect, the institution chooses to apply.
Cost Allocation Definitions
Direct Cost - Direct costs are those that can be specifically identified and assigned with relative ease and with a high degree of accuracy to a program or activity. These are costs where it is practical to track actual usage by program or activity.
Examples include phone related charges which can be tracked to a specific phone, copying costs where the number of copies for each cost center are available and postage costs where these costs are accumulated for each cost center.
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For MnSCU purposes, costs commonly identified as specific and measurable will be treated as direct costs, regardless of campus allocation methods currently being used. Example: School A enters postal charges for each dept into C/A module on daily basis. When the C/A module is run it will process all charges. School B accumulates postal charges for a quarter, allocates the quarter total using a method based on a predetermined calculation such as "Jobs Processed". School B then enters information into system using a JG. Even though School B is using a method of allocation the item charged is still considered a "direct Cost". Direct Costs not charged to the appropriate program or activity on an ongoing basis could be charged to the program or activity on a monthly basis. Other suggested time frames would be daily, weekly, quarterly, end of term, or annually. Each institution should include in their written procedure the time frame for the periodic charging of the direct costs. |
Examples:
Salaries and Fringe Benefits
Equipment
Telephone Charges
Direct Labor
Shipping and Freight
Printing Services
Motor Pool
Indirect Cost -- Indirect costs, often referred to as "overhead", are costs incurred for multiple programs or activities and cannot be readily or easily identified with those programs or activities. These costs are not accumulated in units easily traceable to individual activities and therefore must be allocated using a rationale and consistent method that approximates the activities' proportional benefit derived.
Typical costs in this category are facility costs - utilities, maintenance and other related costs; costs of administrative activities such as human resources and fiscal services, and: costs of executive staff, such as presidents and vice presidents. They are to be allocated back based to the appropriate cost center by applying a pre-determined method of allocation.
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For MnSCU purposes, indirect costs will not be credited back to the object code where the expense was paid. Indirect costs will be treated with a standard journal entry to the "Allocated Indirect Cost" object code (7504). Indirect cost transactions are to be completed, at a minimum, once per year at year-end. |
The allocation method could be determined by applying predetermined measurement units to specific types of expenditures. The unit of allocation would be established by the institution and applied consistently to the expense.
Examples:
Administrative expenses
Executive Staff
Payroll service
Utilities
Maintenance
New object codes
- Allocated indirect costs: MnSCU Object Code 7504 MAPS Object Code 2N00
- Cost Subsidy - Out MnSCU Object Code 7108 MAPS Object Code 2N00
- Cost Subsidy - In MnSCU Object Code 7508 MAPS Object Code 2N00
| Related Documents: |
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| Date of Approval: | June 7, 2002 |
| Date & Subject of Revisions: |
