Internal/External Sales Rate Development Level I

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Presentation transcript:

Internal/External Sales Rate Development Level I

Session Objectives Understand the rate development process Determine what costs are allowed in the rate development Rate development example

Internal Sales Expected Outcome Revenue – Expenses = $0 Expense: cost to perform the activity Rate: estimated expense/volume Revenue: rate charged x volume

Policy The purpose of the internal sales rate guidelines is to: Comply with Federal regulations defined by Uniform Guidance Sold at rates that fully cover, but do not exceed costs Subsidies are documented in the rate development All rates should be established to break even

Internal Sales Requirements Rates reviewed each year Updated at least every 2 years per UG Set to break even Based on historical sales data Consistent for all internal customers Subsidies must be documented

External Sales Requirements Rates reviewed each year Updated in order to recover all direct, indirect cost Additional revenue to reach market rate Based on historical sales data Federal government receives lowest rate for same activity ESO F&A should be higher than SPA rates

Process to Developing Internal Rates Measurable unit Expected level of activity Annual estimated costs Breakeven Exclude unallowable costs Direct vs. overhead costs Activity per-unit rate Reviewed and updated each year

Measurable Unit In terms of: Examples: labor, machine time, or tangible product Examples: per labor hour, per machine hour, per copy, per gallon, per test, etc.

Productive Time For units measured in cost per hour, productive time (total time available for the service) should be used, and not total hours. Productive time (billable hours) is total time, less non-billable time such as vacation, sick leave, holiday, breaks, equipment downtime, certification and training time

Billable Hours Template

Rate Development Annual output or expected level of activity Estimate the expected volume/level of activity by using past results or survey likely customers Annual estimated costs Costs should be directly attributable to the functions of the sales activity Costs should be allowable

Direct Costs Salaries and fringe benefits of those providing the service or directly supporting the activity Materials and supplies Depreciation on capital equipment Equipment repair and maintenance, service contracts Prior year surpluses and deficits and other required adjustments

Unallowable Costs Advertising expenses except for employee and subject recruitment Alcoholic beverages Bad debts Entertainment costs example: Food Goods and services for personal use Interest, fund raising, and investment costs Memberships not work related

Unallowable Costs Unallowable costs will not be paid by the federal government because they are not directly related to the benefit of the research project. Costs included in the negotiated F&A Rate

Unallowable Costs Defined-Per Policy Costs that cannot be charged to a project per sponsor guidelines or any other costs incurred by the University that Office of Management and Budget Uniform Guidance specifies cannot be included in the development of the indirect cost rate charged, nor as a direct cost to a Federally sponsored project, nor included in ISO/department recharge rates.

Unallowable Costs 08/19/09 University of Michigan NSF NSF OIG 09-1-014 Withum, Smith & Brown Questioned Costs:  Alcohol charges on a hotel bill for $637  Salaries of $21,083 for two months for an employee who was no longer employed by the University  Payments totaling $3,200 for a foreign visitor to Ann Arbor at $100/day for meals with no receipts. The changes were in violation of University policy and in excess of the Federal Travel Regulation.

Per Unit Rate Determine the breakeven rate Determine the per-unit rate The goal is to break even at the end of the fiscal year Determine the per-unit rate Direct costs +/- surplus or deficit Estimated volume of work

Per Unit Rate Example Determine the per-unit rate: $100 = $100,000 - $10,000 (Surplus) 900-Units

What is Allowable? Cost of an activity is comprised of the allowable direct costs required for the performance of the activity. Must be reasonable: Necessary for the performance of the activity Considering the interests of the institution Does not violate institutional principles Charge can be reasonably explained as necessary to complete activity

What is Allowable? Must be allocable to the specified activity Assigned percentage based on the benefits received Incurred to advance the work of the activity Costs cannot be shifted to other activities to cover deficits

What is Allowable? Must be consistently applied In estimating, accumulating and reporting costs With the institution’s cost accounting practices Allocating costs incurred for the same purpose

Internal Sales Rate Template

Internal Sales EFS website: Procedure & Website Internal Sales EFS website: http://controller.umn.edu/units/internal-external-sales/index.html Policies Procedures Presentations Job Aids Training Modules

Questions? Office of Internal Sales website: http://controller.umn.edu/units/internal-external-sales/index.html This presentation is posted on the site.