The indirect costs in the numerator of the equation should bear a reasonable relationship to the direct costs from the denominator. (i.e., capital expenditures and major contracts and subgrants). An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying unallowable costs, and extraordinary or distorting expenditures. Materials, supplies and equipment purchased directly for use on a specific grant or contract.Ĭommunication costs such as long distance telephone calls or telegrams identifiable with a specific award or activity.Īn indirect cost rate is simply a mechanism for determining fairly and conveniently within the boundaries of sound administrative principle, what proportions of Departmental/organization administration costs each programs should bear. Other employee fringe benefits allocable on direct labor employees.Ĭonsultant services contracted to accomplish specific grant/contract objectives. Salaries are wages (including vacations, holidays, sick leave, and other excused absences of employees working specifically on objectives of a grant or contract i.e, direct labor costs). Direct costs can be identified specifically with particular cost objectives such as a grant, contract, project, function or activity. Looking at it another way, indirect costs are those costs that are not classified as direct. Therefore, cost allocation plans or indirect cost rates are used to distribute those costs to benefiting revenue sources. Practical difficulties preclude such an approach. In theory, costs like heat, light, accounting and personnel might be charged directly if little meters could record minutes in a cross-cutting manner. Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization and the conduct of activities it performs. So You Want to Know About Indirect Costs What are indirect costs?
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