subject: Indirect Cost Submission Guide [print this page] What are indirect costs? What are indirect costs?
In business, indirect costs can be defined as the expenditures that are not associated with any particular contract, grant, activity or project function. However, indirect costs make up an essential part of the organizations general operation. Indirect costs also take into account the conduct the organization performs for its activities. Theoretically, heat, light, personals and accounting can be directly charged provided the meters read the minutes in a cross cutting fashion. But, in practicality that is something very difficult to record. This is the reason, why, indirect cost rates or cost allocation plans have been introduced for the distribution of the aforementioned costs for benefitting the revenue sources.
What is indirect cost rate?
An indirect cost rate is the tool or mechanism that is employed for a fair and convenient determination of the magnitudes of departmental admin costs every program will require to bear. This whole affair of determining is settled with the stringent administrative principles. Mathematically, the indirect cost rate is the ratio of the total indirect costs to the benefitting direct costs. The calculation is done after the exclusion and/or reclassification of the distorting or extraordinary expenses and unallowable costs. These include the various capital costs, sub grants and major contracts. However, the numerator in the equation of indirect costs must be able to establish a reasonable relationship with the denominator.
What is indirect cost proposal submission?
For approving the indirect cost rates of the recipients, the federal agency depends on the indirect cost submissions. For this reason, the proposal or allocation plan for the indirect costs should have the requisite characteristics. For example, it should be able to identify the departments activities as well as enlist the costs of their attendants. Then, it will require incorporation of those expenses allocated to the various units or departments through the cost allocation plan. This will then need a classification of the activities and costs as direct or indirect. Finally, the indirect cost rate will be computed.
by: bobiem
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