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Introduction

Allocation of costs is the process of assigning a cost or a group of costs, to one or more PTAs in accordance with the benefits received. You should not allocate costs after the fact.

Typically, you allocate costs at the time of purchase through a purchase requisition or another mechanism. However, you may need to distribute costs for items such as lab supplies to the PTAs to multiple benefitting projects. These costs may be allocated only if they advance the work of the project in the same proportion as the cost. 

  • The PI working with the Research Administrators must ensure that the costs are reasonable and that costs allocated to more than one project have appropriate documentation.

  • The allocation method must be documented in the project file or in the online transactions and must show that the allocation method reflects the PI's judgment and that each project benefits in the percentages of amounts indicated. 

  • The documentation must be in writing and should be updated frequently enough to ensure its accuracy. 

Equipment Is an exception. Where the purchase of equipment or other capital asset is specifically authorized under a Federal award you do not have to allocate its costs to other benefiting PTAs.

Basis for Allocating Costs

Determine the proportion of the costs that benefit each project and are therefore allocable, and charge accordingly.

A cost is allocable to a sponsored agreement

  1. It is incurred solely to advance the work of the sponsored agreement.

  2. It benefits both the sponsored agreement and other work of the institution, in proportions that can be approximated through use of reasonable methods.

  3. It is necessary to the overall operation of the institution and, in light of the principles provided in the OMB Circulars and the Uniform Guidance, is deemed to be assignable in part to sponsored projects. 

Example of Allocating Costs

Costs may not be distributed in an arbitrary manner, e.g., charged entirely to one project one month, and then entirely to another project the second month (unless that is the way that supplies were actually used).

Example:  Purchase of 3,000 test tubes that equally benefit two projects.  

Correct

In the requisition, charge:

50% to PTA ABC

50% to PTA EFG

Incorrect

In the requisition, charge: 

100% to PTA ABC and the following month charge 100% to PTA EFG

Why?  100% of the test tubes did not benefit PTA ABC

Allocation Methodologies

  1. Allocation is generally based on effort or usage including headcount, floor space, number of experiments, etc. 

  2. Prohibited allocation methodologies include any methodology based on budgets, funding or available funds. Available dollars” is NOT a reasonable allocation method.

  3. Administrative expenses may not be distributed or rotated among sponsored projects. Pooled allocation methodologies may not be used to charge administrative costs to sponsored projects.

  4. Allocation methodologies should be reviewed periodically to ensure they are reasonable and appropriately clear the PTA. A best business practice is an annual review. Methodologies based on sampling, surveys, etc. should be reviewed and updated at least once each fiscal year. Significant changes to the population may signal the need to review the allocation methodology

Allocation Based on Effort

A research assistant spends 80% effort on Project A and 20% effort on Project B. The research assistant uses supplies totaling $3,000/month on the two projects. Usage is directly related to the amount of effort devoted to each project, therefore, $2,400 (80% of $3,000) is charged to Project A and $600 (20% of $3,000) is charged to Project B.

Allocation Based on Usage

The monthly cost of supplies/expendables to maintain a lab computer system is $1,000. The computer system is used solely for projects A and B. The computer operating system keeps a log of users and their time on the system. A reasonable base to allocate the expense would be computer user hours. Project A assistants have 100 combined user hours a month and project B assistants have 80 combined user hours a month. The cost allocated to project A is $560 (100 user hrs. /180 total user hrs. x $1,000). The cost allocated to project B would be $440 (80 user hrs. /180 total user’s hrs. x $1,000).

Allocation Based on Square Footage

A student is paid a salary of $1,500 a month to clean glassware in two laboratories that are conducting similar research. In this example, the square footage of the laboratories could be used as a reasonable basis. Lab A is 1600 square feet and Lab B is 1,200 square feet. Lab A is charged $855 (1,600-sq. ft/2800 sq. ft x $1,500) and Lab B charges $645 (1,200-sq. Ft/2800 sq. ft x $1,500).

Procedure for Allocating a Recurring Expense on a Monthly Basis

To allocate a recurring expense on a monthly basis, create an expenditure allocation PTA (EAPTA). An EAPTA  is a specialized departmental expenditure PTA used solely to accumulate expenditures such as materials, supplies, services, or salaries whose distribution to the PTAs benefiting from the expenditures cannot be determined at the time the expenditure is incurred. Departments distribute (or allocate) these expenditures monthly from the expenditure allocation PTA to benefiting PTAs.

Created: 03.01.21
Updated: 05.25.21