What Are the Methods for Allocating Indirect Costs?
There are several methods for allocating indirect costs. The two most common are case-by-case allocation and developing an indirect cost rate. • Case-by-Case Allocation One method of allocating indirect costs is to determine a rate of actual usage for each program. For example, you may decide to keep track of long distance telephone calls and charge them to the appropriate program when you pay the phone bill each month. Similarly , some organizations use a counter or log to track copying expenses for each program and/or function. Time sheets may form the basis for allocation of salaries for the executive director, accountant, and staff whose work benefits more than one program or activity. A different method can be adopted for each line item or case. The advantage of this method is that it seems to “make sense.” A major disadvantage, however, is that it often requires a great deal of time consuming record keeping. Even if you keep the records needed to precisely allocate shared expense
There are several methods for allocating indirect costs. The two most common are case-by-case allocation and developing an indirect cost rate. Case-by-Case Allocation. One method of allocating indirect costs is to determine a rate of actual usage for each program. For example, you may decide to keep track of long distance telephone calls and charge them to the appropriate program when you pay the phone bill each month. Similarly, some organizations use a counter or log to track copying expenses for each program and/or function. Time sheets may form the basis for allocation of salaries for the executive director, accountant, and staff whose work benefits more than one program or activity. A different method can be adopted for each line item or case. The advantage of this method is that it seems to “make sense.” A major disadvantage, however, is that it often requires a great deal of time-consuming record-keeping. Even if you keep the records needed to precisely allocate shared expenses
Related Questions
- What is the difference between the "simplified" and direct cost allocation methods for charging indirect costs? How do they affect the use of "rent" as matching?
- Why does the university charge for Facilities and Administration ("F&A") (aka indirect costs or overhead) costs?
- What Are the Methods for Allocating Indirect Costs?
