University of Minnesota Internal/External Sales Advanced Internal Sales Rate Development. Learning Objectives. Understand the rate development policy that applies to rates charged to other University units. Determine what is allowed and how to allocate of costs .
Advanced Internal Sales Rate Development
Federal A-21 regulations and Federal Cost Accounting Standards (CAS)
Set to break even
Consistent for all internal customers
Federal government receives the lowest University, or internal rate for similar goods and services purchased at the University
Subsidies must be documented
Principles for Internal Sales
Steps to developing an Internal Sales rate:
Measurable unit for goods and services
(For example, per labor hour, per machine hour, per test, etc.)
Annual output or expected level of activity
Annual estimated costs
Generally, operating costs include:
Can you use the same rate as the previous year fiscal year?
No, rates are to be reviewed and updated at least annually.
Billable hours, staff participation, fringe rates, equipment usage, cost of services, cost of materials ect. change every year.
Volume changes every year.
I quoted a customer a rate in the previous fiscal year. Can I charge the quoted rate?
If the ISO charges the same rate as last year then the subsidy must be provided for the difference.
If this does not occur the ISO will have future customers pay for the difference and this is not allowed.
Different customers will pay a different rate for the same services or product in the same year.
When do I calculate a rate (standard) based on multiple inputs and when should I use a hourly rate?
The accuracy of the rate development should be able to predict the actual outcome.
The percentage of time, supplies consumed and equipment usage should depend on the volume of the activity not changes in resources.
Changes in volume should reflect changes to resources and the outcome should be the same.
How many rates should I have?
Rates should be develop for each unique activity were different inputs are required to get a unique output.
What other things should be considered when putting together a rate development.
Do not round.
Estimates should be based on last years actuals or expected future expenses.
Do not allocate dollars based on a percentage of cost, use a fixed value based on estimated hours.
Do not use last years rates.
Do not use a inflation index or some other index.
Office of Internal Sales website