1. Internal/External Sales Rate Development Level I

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

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

4. 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

5. 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

6. 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

7. 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

8. 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.

9. 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

10. Billable Hours Template

11. 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

12. 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

13. 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

14. 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

15. 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.

16. 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.

17. 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

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

19. 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

20. 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

21. 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

22. Internal Sales Rate Template

23. Internal Sales EFS website:
Procedure & Website
Internal Sales EFS website:
Policies
Procedures
Presentations
Job Aids
Training Modules

24. Questions? Office of Internal Sales website:
This presentation is posted on the site.