Now that you've completed what kind of services are part of the activity, it's time to determine which costs are allowable to include in your rate. These are the costs which directly support the activity.
By policy, rates can only include costs that directly support an activity.
Here's How
Categorize the types of costs that you listed on the Activity Scope Assessment.
| Direct Costs can be included in rate | Indirect Costs cannot be included in rate | |
| definition | Those costs that can be directly and consistently traced to the product or service of the activity. | Are day to day costs of conducting business that are incurred for common or join objectives. They are also known as Facilities & Administration Costs. |
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Still Not Sure?
If you are still unsure if a cost is allowable as a direct cost, you should apply the “Keep the Lights on Test”.
Is this type of cost necessary to “keep the lights on” in your Unit? If so, then it’s probably not a direct cost attributed to a specific activity.
What questions should be asked in the “Keep the Lights on Test?”
- Is this cost necessary for the operation of the entire unit?- No- Direct Cost
- Can the cost be identified to a specific activity? Yes – Direct Cost
- Is the cost consistent with institutional policies, procedures and practices?- Yes- Direct Cost
If you are still uncertain what to include in your rate, contact your Control Unit.
Determine appropriate unit of measurement
Review your final list of Direct Costs. Based on your experience or best estimate, which costs will you expect to drive your rate? Not all rates will be measured per hour. Some may based on per acre, per project or others.
Review some examples of rate measurements.