Overhead Cost Recovery Methods

Process

This guide describes the overhead rate calculation and processing for Cost Allocation in CORE.

The Cost Allocation process (RECOMMENDED) is one of two methods that can be used to record indirect costs:

The purpose of the Cost Allocation Process is to allocate indirect costs to the appropriate entities. Indirect costs are initially recorded to ‘pool’ entities. The Cost Allocation Process then allocates those costs to defined ‘base’ entities.

The Cost Allocation process will also perform Charge Back processing, where additional expenditures and revenues will be posted to the system based on selected expenditures. The calculated indirect costs posts as an expense and revenue in the general ledger.

Cost Allocation Process Overview

Cost Allocation functionality is not Major Program focused

• User defined or system calculated Allocation Rate percentages are applied to accumulated defined direct costs, to generating entries to records these indirect costs.

• Direct costs typically do not remain intact.

• The generated Cost Allocation entries are Charge Transaction accounting lines that post as two-sided entries to the Accounting Journal.

The other method to apply overhead percentages to Program costs for indirect recovery is the Overhead Rate process; it is unique to the Cost Accounting module:

Overhead Rate Method - Method calculates indirect costs as an overhead rate applicable to direct costs.

The Overhead Rate method is driven by the concept of a predefined percentage that is applied to the appropriate direct costs to account for overhead and administrative costs. Indirect cost distribution is achieved by totaling up direct costs, applying the predefined percentage, and generating Cost Accounting journal entries to record these indirect costs.

With this method, direct costs remain intact and indirect amounts generate additional postings to record the costs. The generated entries are Charge transaction accounting lines that post as one-sided entries to the Cost Accounting Journal NOT the general accounting journal or ledgers.

Overhead Rate and Cost Allocation Overview

Indirect cost distribution is Major Program focused

• Pre-defined Overhead Rate percentages are applied to accumulated defined direct costs, to generate entries to record these indirect costs.

• Direct costs typically remain intact.

• The generated Overhead entries are Charge Transaction accounting lines that post as one-sided entries to the Cost Accounting Journal.

• Different Overhead Rates can be applied to different types of expenses within a Major Program structure.