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University of Minnesota Internal/External Sales Internal Sales Rate Development Level I

University of Minnesota Internal/External Sales Internal Sales Rate Development Level I. Learning Objectives. Understand the rate development process. Determine what costs are allowed in the rate development. Walk through a rate development example.

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University of Minnesota Internal/External Sales Internal Sales Rate Development Level I

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  1. University of Minnesota Internal/External Sales Internal Sales Rate Development Level I

  2. Learning Objectives • Understand the rate development process • Determine what costs are allowed in the rate development • Walk through a rate development example • Questions at anytime during the presentation 2

  3. Expected Outcome • Revenue – Expenses = $0 at the end of the Fiscals Year • Revenue is the rate charged times the volume • Rate is estimated expense/volume • Expense is the cost to perform the activity • Note: any allowable variance is included in next year’s rate 3

  4. Internal Sales Rate Development Procedure and Website 4 Internal Sales EFS website: http://www.finsys.umn.edu/sales/iso.html • Policies • Procedures • Presentations • Job Aids • Training Modules

  5. Internal Sales Rate Policy 5 The purpose of the internal sales rate guidelines is to: • Comply with Federal regulations • 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.

  6. Reviewed and updated each year Set to break even Based on historical sales data Consistent for all internal customers Federal government receives the lowest rate Subsidies must be documented Principles for Internal Sales Rates 6

  7. Internal Sales Rate Development 7 Steps to developing an Internal Sales rate: • 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 8 Measurable unit for goods and services • 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 9 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) is total time, less non-billable time such as vacation, sick leave, holiday, breaks, equipment downtime, certification and training time.

  10. Billable Hours Template 10

  11. Billable Hours Example 11

  12. Rate Development (cont.) 12 Annual output or expected level of activity • Estimate the expected volume / level of activity, by using past results or survey likely customers Annual estimated costs • Costs should be directly attributable to the functions of the sales activity • Costs should be allowable

  13. Direct Costs 13 Direct costs include: • 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

  14. Unallowable Costs • Exclude Unallowable Costs • advertising expenses except for employee and subject recruitment • alcoholic beverages • bad debts • entertainment costs • goods and services for personal use • interest, fund raising, and investment costs • Memberships not work related • See handout: Unallowable Internal Sales Costs 14

  15. Unallowable Costs Exclude Unallowable Costs The general premise for unallowable costs is that the federal government will not pay for certain costs that they believe are not directly related to the benefit of the research project. 15

  16. Per Unit Rate • Determine the per-unit rate • Direct costs +/- surplus or deficit • Per unit rate = ------------------------------------------- • Estimated volume of work Determine the breakeven • The goal is to breakeven at the end of the year 16

  17. Per Unit Rate Example • Determine the per-unit rate • $100,000 -10,000 • $100 = -------------------------- • 900 Example: 17

  18. What is Allowable? • 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 Cost of an activity is comprised of the allowable direct costs required for the performance of the activity 18

  19. What is Allowable? (cont.) • Must 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

  20. What is Allowable? (cont.) • Must be consistently applied • - In estimating, accumulating and reporting costs • - With the institution’s cost accounting practices • - Allocating costs incurred for the same purpose 20

  21. Internal Sales Rate Template 21

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

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