The purpose of this procedure is to ensure that goods and services sold to other University departments are:
- sold at rates that comply with Uniform Guidance CFR number 2 CFR 200; and
- sold at rates that fully cover, but do not exceed costs.
Develop the internal sales rate with the following principles in mind:
- Review and update rates annual
- Units may update rates more to avoid large fluctuations due to unexpected expenses .
- Establish rates to breakeven
- Subsidies (planned or unplanned) must be documented in the rate development process.
- The University is subject to periodic audit by the federal government to assure the rates charged to federally supported activities are not greater than the actual cost and in compliance with Uniform Guidance CFR number 2 CFR 200.
- Rates must be consistent for all internal customers.
Establish the rate
- Determine the measurable units for goods or services.
The measurable unit may be determined in terms of labor, machine time, or tangible product. Examples of a unit of measurement include: per labor hour, per machine hour, per test, etc. For units measured in cost per hour or other measures of time, use billable hours and not total hours available in the cost calculation. Billable hours are the total time available, less non-billable time such as time for vacation, sick leave, holiday, other forms of leave, breaks, equipment downtime, machine repairs, education/certification and meetings.
A unit may not conduct internal sales if it cannot determine an actual usage in measurable units of output or other reasonable basis as approved by the Internal Sales Office.
- Determine the annual output, or expected level of activity, for the service or product.
Estimate the expected volume for the service or goods provided, by using past results, known future events or survey likely customers.
- Determine annual estimated costs involved with running the recharge service.
All costs included in the internal sales rate development should: (1) be directly attributable to the functions of the internal sales activity and (2) be allowable under OMB Uniform Guidance CFR number 2 CFR 200. Operating costs include:
- Salaries and wages
- Fringe benefits
- Materials, direct supplies and services
- Travel related to the operation of the internal sales
- Depreciation associated with capital equipment
- Noncapital equipment
- Equipment repair and maintenance
- Sub-contractors and other outside services
- Reconciled carryforward balance
Salaries and wages include faculty and staff who: provide the services; produce the goods or services; manage the internal sales activity; and provide other administration and support activities related specifically to the internal sales activity. Administrative staff directly supporting internal sales operations should be included in the rate calculation if such support represents 15% or more of that individual's time.
Materials, supplies and services include only the direct supplies, professional services, and special conferences related specifically to the internal sales activity. Office supplies are generally considered indirect costs and should not be included in the rate development. Office supplies that are consumed solely for the operation of the internal sales activity in deliverance of its goods or services may be budgeted and included as allowable costs.
Travel, service contracts, noncapital equipment and other actual expenses incurred specially for the operation of the internal sales activity, should be treated as a cost and included in the calculation of the internal sales rates.
Depreciation associated with capital equipment should be included in the rate development. Depreciation expense will be calculated in the Asset Management module. Separate capital equipment chartfield strings in the Plant Fund 7201 should be established to account for capital related transactions, see Administrative Procedure: Capital Equipment Acquisitions – Internal Sales Activity Capital Equipment Purchases.
If equipment is funded from a federal source (i.e. Federal agency grant/contract, agricultural appropriation, federal pass-through to granter/contractor), depreciation cannot be recovered in rates.
Surplus and deficit balances +/- 15%: Prior year surpluses must be taken into consideration in the internal sales rate development because federal regulations do not allow for a surplus buildup. Any deficit resulting from the prior year's operations must be taken into consideration in the internal sales rate calculation, or subsidized by other non- sponsored funds.
FOR SPECIALIZED SERVICE CENTERS ONLY -- Note: Other general development activities may be allowable. Consult the Internal/External Sales Office for this determination.
Non-sponsored General Development: time and associated costs used when creating, testing and installing fundamental building blocks and reusable components. General development activities must be incurred for common or joint objectives and therefore cannot be readily or specifically identified with a:
- particular industry sponsor (where the industry sponsor is providing financial support, directing the activities, or requesting specific deliverables);
- sponsored project;
- an instructional activity; or
- institutional activity.
General development may include any of these activities:
- Develop and test hardware (coils, connectors, custom-built equipment such as digital receivers, gradient tuning.)
- Develop, modify and test new software (software coding and testing, including pulse sequences, image acquisition and reconstruction, automatic shim adjustments, magnet system software customization, data transfer software testing)
- Other development: test new contrast agents, optimize sequences, system integration and testing, and update sequences for hardware changes.
The accounting for development costs to set internal sales rates requires that Non-sponsored General Development be broken down into three categories:
- Category I – Unallowable Department Research – Preliminary project stage includes the conceptual formation of alternatives, evaluation of alternatives, determination of the existence of needed technology, and the final selection of alternatives. This time and associated costs falls under the definition of Department Research and is not considered an allowable Non-sponsored General Development cost. These costs will not be built into the internal sales rate. The time spent on the equipment is billable to the user.
- Category II – Allowable Depreciable Costs – Application development stage includes the design of chosen paths, including software configuration and software interface, coding, installation of hardware, and testing. Management with application authority approves, implicitly or explicitly, funding of the project and it is probable that the project will be completed and be used to perform the intended function. The costs associated with this activity are allowable as Non-Sponsored General Development. Project costs greater than $5,000 may be accumulated and capitalized to the point of implementation. (See OMB Uniform Guidance CFR number 2 CFR 200 definitions-- Special Purpose Equipment) Capitalized costs are amortized over the remaining useful life that was added to the hardware or software as a result of the project. Time spent installing the hardware or software are not billable hours and would not be included in the total hours used to determine the rate (or total usage time) if the equipment is unavailable for use by others during this time.
According to GAAP, capitalization of costs should begin when both of the following occur:
- The preliminary project stage is complete (Category I activity)
- Management with application authority authorizes, implicitly or explicitly, funding of the project and it is probable that the project will be completed and the software will be used to perform the function intended.
- Category III - Allowable Period Costs – Post-implementation stage includes training and application maintenance necessary for the operation of the equipment. Costs associated with this activity, if not identifiable to a specific sponsored project, are allowable as period costs. Time spent on this activity are not billable hours and would not be included in the total hours used to determine the rate (or total usage time) if the equipment is unavailable for use by others during this time.
- Exclude unallowable costs.
According to OMB Uniform Guidance CFR number 2 CFR 200, certain operating costs are specifically unallowable, such as entertainment costs, and fines. Refer to Examples of Unallowable Costs as Designated by OMB Uniform Guidance CFR number 2 CFR 200 and ensure that all unallowable costs have been excluded.
- Specialized Service Centers may include additional costs accordingly.
An allocable share of departmental administrative costs, facilities costs, and non- sponsored general development costs may be included in the rate development process.
Costs than can be included are utilities, space costs and library costs, or other administrative or facilities.
- Determine the amount of any applicable subsidy.
In order to be competitive, a recharge center may offset the rate with a subsidy from the department or college. The subsidy must be part of the rate calculation.
- Determine the internal sales activity per unit rate.
The rate is calculated by dividing the total annual cost for providing the good or service by the total expected service units for the budget year.
Total annual cost for providing the good or service equals all costs directly associated with the recharge service, minus any subsidy, plus prior year under-recovery, or minus prior year over-recovery. Total level of activity is the total estimated volume of work to be performed in recharge service, expressed as labor or machine hours, CPU time, or units of products or services provided.
Distinctive goods and services
Separate billing rates should be developed for distinctive types of goods/services, when the cost of providing the good/service is substantially different from other goods/services. This will ensure that one service rate is not offsetting lower prices of others.
If a unit offers more than one good or service, it may be necessary to assign or allocate allowable costs to the various goods or services offered. Each type of cost must be examined to determine its proper allocation, and the allocation process must be thoroughly documented in writing. Any costs that cannot be allocated in a justifiable manner should not be included as a cost in establishing a rate.
- Submit new rate to unit management for approval.
Rates for the recharge service or specialized service must be updated every two years. Provide rate review documentation to the Internal Sales Office at the time of an Internal Sales Review. In accordance with the annual budget process instructions, recharge centers may be required to submit their budget information to the Budget Office.
Rate Development Worksheets