System Procedures
for Chapter 7- General Finance Provisions
Procedure 7.3.4 Cost Allocation
for Board Policy 7.3
Part 1. Authority
Board Policy 7.3, Financial Administration, delegates to
the chancellor authority to develop procedures to implement this
policy.
Part 2. Guidelines
This procedure covers the allocation of both direct and indirect
costs to college and university programs, activities and cost centers.
Cost information serves many purposes, both internal and external.
The purpose for accumulating cost information may dictate the type
and complexity of the costing methods. The costs to be allocated,
both direct and indirect, will be determined by the uses of the
information.
Costs may be allocated in order to price goods or services. Another
purpose is to assist in the allocation of resources.
Definitions
- 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
labor and fringe benefits, telephone-related charges traced to
a specific telephone account, copy costs where the number of copies
are identified by cost center, and postage costs where these costs
are accumulated by cost center.
- 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, such
as 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.
Allocating Costs
A. All direct costs paid centrally must be evaluated to determine
if they should be allocated and charged back to the related programs
or cost centers.
B. Where required by program code structure, certain costs must
be charged directly or allocated back to specified programs. Where
any of these costs are immaterial, or where the effort to allocate
as direct costs is prohibitive, the costs may be allocated in
the same way as an indirect cost. See Program Codes for list of
costs and programs.
For auxiliary and other student service activities, budget principles
approved by the president may dictate that specific programs not
be charged their share of all direct or indirect costs. However,
all costs must be calculated, accounted for in the accounting
system and included in program costs for purposes of financial
reporting.
C. In order to be treated as an auxiliary activity, uncharged
costs must be reasonable in relation to overall net income.
Indirect Costs methods
The method used to determine an indirect cost rate to apply to
activities and functions must be:
- Reasonable;
- based on a documented principles and procedures; and
- based on reliable financial and other information.
Indirect costs may be applied as a single rate or in multiple rates
based on the cost factors involved. These may be square footage
for facilities costs, including utilities, maintenance, and depreciation
where applicable. Cost for the human resources and payroll functions
may be based on the number of full-time equivalent (FTE) employees,
the number of staff hired during the year or some other reasonable
basis. Costs for the business office function may be based on non-personnel
costs incurred.
In each of these examples, the rates should be based on prior year
actual data or an estimate for the current year. The rate applied
normally would not change during the year unless a material event
occurred to require a change.
Part 3. Costs for Contract Training/Services
Contract training/services include all instruction and related
services designed and delivered to meet the needs of private and
public sector companies/organizations. Such instruction includes
closed enrollment, credit or non-credit, provided under a contract
with market pricing. This is Customized Training Network sponsored/state
appropriation supported activity and must be recorded in MnSCU Fund
120. A college/university may determine classes such as preparing
a will are excluded as provided for in a college/university procedure.
For purposes of determining total program costs for customized
training activities, all direct and indirect costs must be included
in accordance with this procedure. The basis used must be consistent
with that used for any other activities or programs where indirect
costs are allocated. Written budget principles approved by the president
may dictate that these programs not be charged their share of all
direct or indirect costs.
| Related
Documents: |
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| Date
of Approval: |
June 7, 2002 |
| Date &
Subject of Revisions: |
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