Indirect Costs When Revenue is not Fixed

I wrote about the so called magic formula for budgeting indirect costs on a fixed amount grant.  This calculation uses the grant revenue amount to determine how much of the grant you can budget to spend and how much needs to be set aside for indirect costs.

However it is important to remember – actual indirect costs are always based on expenditures.

The calculation based on revenue confuses some new employees.

The following should clarify:

  • Is this a fixed grant amount? Yes
  • Can you cover a deficit by transferring in other funds? No
  • Is this a budget calculation (not actual expended) Yes

If the above conditions are met, use the IC formula based on revenue for budgeting purposes.

For everything else, just multiply qualifying expenses times the rate.

Photo credit: earthineer.com

Photo credit: earthineer.com

Example:  In the Cafeteria fund, revenue is estimated based on projected sales.  Expenses are estimated based on estimated personnel and food costs.  Revenue is not fixed and is unlikely to ever exactly equal expense.  Both budgeted and actual indirect costs are based on expenses. And just a reminder, in California the indirect cost rate for the Cafeteria Fund is the lesser of the statewide average rate or the district’s individual rate.  Find the statewide rate here.

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