1. Internal/External Sales Rate Development Level I

2. Session Objectives Understand the rate development process Determine what costs are allowed in the rate development Rate development example

3. Expected Outcome Revenue – Expenses = $0 ExpenseExpense: cost to perform the activity RateRate: estimated expense/volume RevenueRevenue: rate charged x volume

4. 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 even

5. 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 documented

6. 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 customers

7. 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 year

8. 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.

9. 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)Productive time (billable hours) is total time, less non- billable time such as vacation, sick leave, holiday, breaks, equipment downtime, certification and training time

10. Billable Hours Template

11. Rate Development Annual output or expected level of activityAnnual output or expected level of activity –Estimate the expected volume/level of activity by using past results or survey likely customers Annual estimated costsAnnual estimated costs –Costs should be directly attributable to the functions of the sales activity –Costs should be allowable

12. 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 adjustments

13. 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 related

14. Unallowable Costs Unallowable 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 Rate

15. Per Unit Rate Determine the breakevenDetermine the breakeven –The goal is to break even at the end of the year Determine the per-unit rateDetermine the per-unit rate Direct costs +/- surplus or deficit Estimated volume of work

16. Per Unit Rate Example Determine the per-unit rate: $100 = $100,000 - $10,000 900

17. 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 activity

18. What is Allowable? Must be allocable to the specified activityMust 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 deficits

19. What is Allowable? Must be consistently appliedMust be consistently applied –In estimating, accumulating and reporting costs –With the institution’s cost accounting practices –Allocating costs incurred for the same purpose

20. Internal Sales Rate Template

21. Procedure & Website Internal Sales EFS website: http://www.finsys.umn.edu/sales/iso.html Policies Procedures Presentations Job Aids Training Modules

22. Questions? Office of Internal Sales website:http://finsys.umn.edu/sales/iso.html This presentation is posted on the site.