ALLOCATION OF COSTS – INTRODUCTION - 9213

(Revised and renumbered from 9200)

This section provides the definition, methodology, and required documentation for the allocation of agency/department costs to their program budgets.

• Allocation is the process of assigning and distributing a cost or group of costs to one or more cost objectives in reasonable proportion to the benefit provided or other equitable relationship. The process may entail assigning a cost(s) directly to a final cost objective or through one or more intermediate cost objectives.

   

• All budgets are required to be in a program appropriation format. Agencies/departments with budgets in a category format must convert traditional line-item costs to the required program budget levels as displayed in the Governor’s Budget. Any budget which remains in a category format must be approved by the Department of Finance.

   

• Agencies/departments that receive federal funds should refer to SAM sections 9210-9212 for information regarding Indirect Cost Rate Proposals (ICRPs) or Cost Allocation Plans (CAPs). ICRPs and CAPs identify the methods in which the federal government allows agencies/departments to request and receive federal funds.

   

• Costs with one or more characteristics in common are accumulated into cost pools. A cost pool is a grouping of individual costs by an agency/department. Cost pools are then assigned to one or more programs. Costs assigned to a program are either direct or indirect. Refer to SAM section 9213.3 for information regarding time reporting.

   

• Direct costs are costs that can easily be identified to a program. Examples of direct costs are personal services for project staff, consultants, travel, and training.

   

• Indirect (overhead) costs do not have a direct relationship to the program and are assigned through the use of a formula.  Examples of indirect costs are costs for administration and legal units; and unassigned utilities or rent.

   

• Personal services and operating expenses and equipment (OE&E) can be either direct or indirect costs. Personal services and OE&E for administration are indirect costs, but personal services for program staff are direct costs. Materials purchased in bulk for agency/department-wide use are typically handled as indirect costs, while materials required for specific projects are charged as direct costs. Some OE&E costs, e.g., telephone costs, may be direct or indirect costs depending upon whether those costs can be assignable to a specific project or program.

   

• Some organizational units, e.g., information systems, data processing, and reproduction, etc., provide services to other units in the department. These service units differ from the staff support organizational units (e.g., accounting, budgeting, personnel, etc.) in that they have readily measurable products. Service unit costing is the procedure used to determine the cost per unit of the service rendered. Service unit costs may be direct or indirect, depending on how their costs are allocated.

Regardless of the type of cost, all costs should be allocated according to the most equitable basis practical. In addition, costs should be allocated consistently throughout the fiscal period.