Cost Allocation
A Cost Allocation is utilized to accomplish and expenditure transfer between two internal departments, or cost centers, for goods or services provided by one department another.
This shall be accomplished by use of the “Cost Allocation Module” in MnSCU’s accounting system. This module allows the seller department to automatically bill individual areas and receive reimbursements from them for their portion of the cost.
The primary purpose of a Cost Allocation is for a department to recoup costs for providing goods and services to another department when these types of expenditures are not provided for through the College’s normal budgeting process. Cost information serves many purposes, both internal and external. Costs may be allocated in order to price goods or services. Another purpose is to assist in the allocation of resources.
This procedure covers the allocation of both direct and indirect costs to college programs, activities and cost centers.
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 is immaterial, or where the effort to allocate as direct coats is prohibitive, the costs may be allocated in the same way as an indirect cost.
Indirect costs methods
The method used to determine an indirect cost rate to apply to activities ad functions must be:
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. Costs 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.
For auxiliary and other student service activities, budget principals 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.
In order to be treated as an auxiliary activity, uncharged costs must be reasonable in relation to overall net income.
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 non0-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.
Cost allocation will be accomplished by utilizing the reasonable cost allocation model, depending on the area, types of costs, and reasonableness of the costing. Considerations for appropriate usage of and allocation nodule include:
Date effective: 2/22/2006
Date last amended: 2/22/2006
