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How is an Indirect Cost Rate Computed?

April 26, 2017computed COST indirect rate

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How is an Indirect Cost Rate Computed?

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An indirect cost rate is a device for equitably allocating indirect costs to projects.An indirect cost rate is a mathematical computation that is the ratio between the total indirect costs (pool) and an equitable direct cost base. The indirect cost system an organization develops depends primarily on the size and type of organization. The following are examples of indirect cost systems. • One Tier System: One Pool Pool includes Fringe Benefits, Overhead and G&A • Two Tier System: Two Pools (Go to Excel File http://oamp.od.nih.gov/dfas/IDCTwoTierExample2.xls for a detailed example) Fringe Benefits Pool Overhead and G&A Pool • Three Tier System: Three Pools (Go to Excel File http://oamp.od.nih.gov/dfas/IDCThreeTierExample.xls for a detailed example) Fringe Benefits Pool Overhead Pool G&A Pool An organization should chose a Base for allocating indirect costs that will equitably distribute indirect costs to all projects.