Level I Session Objectives Understand the rate development process Determine what costs are allowed in the rate development Rate development example Expected Outcome Revenue Expenses 0 ID: 747875
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Slide1
Internal/External Sales Rate Development
Level ISlide2
Session Objectives
Understand the rate development process
Determine what costs are allowed in the rate development
Rate development exampleSlide3
Expected Outcome
Revenue – Expenses = $0
Expense
: cost to perform the
activity
Rate
: estimated expense/volume
Revenue
: rate charged x volumeSlide4
Policy
The purpose of the internal sales rate guidelines is to:
Comply with Federal regulations defined by Uniform Guidance
Sold at rates that fully cover, but do not exceed costs
Subsidies are documented in the rate development
All rates should be established to break evenSlide5
Internal Sales Requirements
Reviewed each year
Updated at least every 2 years
Set to break even
Based on historical sales data
Consistent for all internal customers
Federal government receives the lowest rate
Subsidies must be documentedSlide6
External Sales Requirements
Reviewed each year
Updated in order to recover all direct, indirect cost
Additional revenue to market
Based on historical sales data
Consistent for all internal customersSlide7
Process
to developing
Rates
Measurable unit
Expected level of activity
Annual estimated costs
Breakeven
Exclude unallowable costs
Direct vs. overhead costs
Activity per-unit rate
Reviewed and updated each yearSlide8
Measurable Unit
In terms of:
labor, machine time, or tangible product
Examples:
per labor hour, per machine hour, per copy, per gallon, per test, etc.Slide9
Productive Time
For units measured in cost per hour,
productive time
(total time available for the service) should be used, and
not total hours
.
Productive time (billable hours)
is total time, less non-billable time such as vacation, sick leave, holiday, breaks, equipment downtime, certification and training timeSlide10
Billable Hours TemplateSlide11
Rate Development
Annual output or expected level of activity
Estimate the expected volume/level of activity by using past results or survey likely customers
Annual estimated costs
Costs should be directly attributable to the functions of the sales activity
Costs should be allowableSlide12
Direct Costs
Salaries and fringe benefits of those providing the service or directly supporting the activity
Materials and supplies
Depreciation on capital equipment
Equipment repair and maintenance (service contracts)
Prior year surpluses and deficits and other required adjustmentsSlide13
Unallowable Costs
advertising
expenses except for employee and subject recruitment
alcoholic beverages
bad debts
entertainment costs
example: Food
goods and services for personal use
interest, fund raising, and investment costs
Memberships not work relatedSlide14
Unallowable Costs
U
nallowable
costs
will not be paid by the
federal
government because they are
not directly related to the benefit of the research project
.
Costs included in the F&A RateSlide15
Per Unit Rate
Determine the breakeven
The goal is to break even at the end of the year
Determine the per-unit rate
Direct costs +/- surplus or deficit
Estimated volume of workSlide16
Per Unit Rate Example
Determine the per-unit rate:
$100 =
$100,000 - $10,000
900Slide17
What is Allowable?
Cost of an activity is comprised of the allowable direct costs required for the performance of the
activity.
Must be
reasonable:
Necessary for the performance of the activity
Considering the interests of the institution
Does not violate institutional principles
Charge can be reasonably explained as necessary to complete activitySlide18
What is Allowable?
Must be allocable to the specified
activity
Assigned
percentage based on the benefits
received
Incurred
to advance the work of the
activity
Costs
cannot be shifted to other activities to cover deficitsSlide19
What is Allowable?
Must be consistently
applied
In
estimating, accumulating and reporting
costs
With
the institution’s cost accounting
practices
Allocating
costs incurred for the same purpose Slide20
Internal Sales Rate TemplateSlide21
Procedure & Website
Internal Sales EFS website:
http://
www.finsys.umn.edu/sales/iso.html
Policies
Procedures
Presentations
Job Aids
Training ModulesSlide22
Questions?
Office of Internal Sales
website:
http://finsys.umn.edu/sales/iso.html
This presentation is posted on the site.