Types of Costs and Factors That Affect Allowability of Costs

Two types of costs are associated with sponsored projects: Direct costs and Facilities and Administrative (F&A or IDC) costs. See Budget Development Guidelines for more information on proper identification and distribution of costs.

• Direct costs can be identified with a particular sponsored project, an instructional activity, or any other institutional activity, or can be assigned directly to such activities relatively easily with a high degree of accuracy. Examples of direct costs are salaries and wages, fringe benefits, equipment, supplies, travel, and publication expenses.For a cost to be directly charged it must be "reasonable," "allocable," "consistently treated," and "not specifically designated as unallowable." A cost must meet all of these conditions before it may be directly charged to a federally sponsored project. These conditions apply to estimating (developing proposals), accumulating (spending), and reporting costs

• Facilities and Administrative (F&A) costs—also called indirect or overhead costs)—are incurred for common or joint objectives. Therefore, they cannot be identified readily with a particular sponsored project, instructional activity, or any other institutional activity. 

Total Costs of a Sponsored Project – Generally, thecost of a sponsored agreement is the sum of the allowable direct costs plus the allocable portion of the allowable F&A costs.

The nature of the cost is not the determining factor in distinguishing Direct from F&A costs; it is whether or not the cost can be identified with a particular sponsored project.

All costs charged to sponsored projects must meet the following cost principles:

• Allowable – permissible according to the terms and conditions of the award

• Allocable – Costs must be allocable and must provide a “benefit”to the project. Costs of goods or services that are charged or assigned to a project must be based on the relative benefits received by the project. This is not an issue if the expense was incurred by a single project. However, if the item is of benefit to more than one project, then a sponsored project may only be charged for the portion of the expense that represents the benefit directly received by that project

• Reasonable – The cost must be reasonable and necessary for the performance of the project. This means that a prudent individual pursuing the proposed work would spend funds in this manner.  

• Consistently Treated – When costs are charged to a federally sponsored project, they must be consistently treated. All costs incurred for the same purpose in like circumstances must be either direct costs only or F&A costs only. A cost item may not be charged as a direct cost on some projects and as an F&A on other projects in like circumstances.