9201 COST ALLOCATION PROCEDURES
(Renumbered from 9205 and Revised 8/94)
Cost allocation procedures distribute accumulated indirect costs to the programs that benefit from the accumulated costs on the basis of percentages that represent a reasonable and equitable allocation base.
Special care must be exercised to ensure that the costs being allocated are complete, agree with, or are reconciled to amounts reported in state agency financial statements. In allocating indirect costs, state agencies will use actual costs and actual usage measures (e.g., labor hours) except when management believes that other estimates are more appropriate.
Regardless of the cost allocation methodologies used, all state agency cost allocation procedures shall demonstrate the following characteristics:
- Information—It shall provide the appropriate accounting information required by management to account for state agency programs as required by state law. In providing the required information, management shall give appropriate consideration to the cost of obtaining and providing the information in relation to the benefits to be derived from the information.
- Timeliness—It must produce program cost data on a timely basis.
- Consistency—The cost identification and distribution methods selected will be applied consistently from period to period.
- Accuracy—The information provided shall be as accurate as possible.
- Auditability—Program costs must be fully auditable; i.e., working papers must be retained showing program cost identification, accumulation, and distribution methods.
Costs that can be identified directly to a program and/or funding source (direct costs) must be charged directly to the program. Indirect costs should be distributed to programs and/or funding sources in the most equitable basis practical. The following are some typical program cost accounting accumulation categories and the typical equitable bases of distribution:
| COST ACCUMULATION |
TYPICAL EQUITABLE DISTRIBUTION BASE |
| Salaries and Wages |
Hours chargeable to each program. |
| Operating Expenses and Equipment |
The most equitable basis practical (e.g., floor space, machine hours, or other usage rate measurement). |
| Service Unit Costs |
Machine hours, labor hours, or other service usage rate measurement. |
| Administration Costs |
The most equitable basis practical (e.g., salaries and wages, personnel years, total budgeted expenditures or other reasonable and systematic basis). |
SAM Section 9244 Illustration 1 through 4 provide sample allocations of these costs and the verification of amounts allocated to the General Ledger.
