Common use of Acceptable Indirect Cost Allocation Methods Clause in Contracts

Acceptable Indirect Cost Allocation Methods. OMB Circulars (i.e., A-87 and A-122) describe the following allowable methods for allocating indirect costs:  Simplified allocation method  Direct allocation method  Multiple allocation base method  Negotiated indirect cost rate Simplified Allocation Method This method can be used when an organization's major functions benefit from its indirect costs to approximately the same degree. Using this method, all allocable costs are considered indirect costs and an indirect cost rate is determined by dividing total allowable indirect costs by an equitable distribution base. Agency-wide indirect costs $250,000 Less: Capital Expenditures 10,000 Allocable indirect costs 240,000 Total Agency-wide direct salaries $1,000,000 Indirect cost rate ($240,000/$1,000,000) 24% Program direct salaries $100,000 Program indirect costs (24% x $100,000) $24,000 This method can also be used when an organization's major functions benefit from its indirect costs to approximately the same degree. Using this method, all costs except general administration and general expenses are treated as direct costs. Joint costs for depreciation, rentals, facilities maintenance, telephone, and other similar expenses are prorated individually to each direct activity on a basis appropriate for that type of cost. The remaining costs, which consist exclusively of general administration and general expenses, are then allocated using the simplified allocation method previously discussed.

Acceptable Indirect Cost Allocation Methods. OMB Circulars (i.e., A-87 and A-122) describe Title 45 Code of Federal Regulations Part 75 et al. describes the following allowable methods for allocating indirect costs:  Simplified allocation method  Direct allocation method  Multiple allocation base method  Negotiated indirect cost rate Simplified Allocation Method This method can be used when an organization's Subrecipient’s major functions benefit from its indirect costs to approximately the same degree. Using this method, all allocable costs are considered indirect costs and an indirect cost rate is determined by dividing total allowable indirect costs by an equitable distribution base. Agency-wide indirect costs $250,000 Less: Capital Expenditures 10,000 Allocable indirect costs 240,000 Total Agency-wide direct indirect salaries $1,000,000 Indirect cost rate ($240,000/$1,000,000) 24% Program direct salaries $100,000 Program indirect costs (24% x $100,000) $24,000 This method can also be used when an organization's Subrecipient’s major functions benefit from its indirect costs to approximately the same degree. Using this method, all costs except general administration and general expenses are treated as direct costs. Joint costs for depreciation, rentals, facilities maintenance, telephone, and other similar expenses are prorated individually to each direct activity on a basis appropriate for that type of cost. The remaining costs, which consist exclusively of general administration and general expenses, expenses are then allocated using the simplified allocation method previously discussed.