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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 .

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University of minnesota internal

University of Minnesota

Internal/External Sales

Advanced Internal Sales Rate Development

University of minnesota internal

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

  • Walk through a rate development example

  • What’s wrong with this rate development?

  • Answers to common questions and issues.

  • Questions at anytime during the presentation


Internal sales rate policy
Internal Sales Rate Policy


  • The purpose of the internal sales rate guidelines is to ensure that goods and services sold to other University departments are being sold at rates that comply with:

    Federal A-21 regulations and Federal Cost Accounting Standards (CAS)

  • Rates fully cover, but do not exceed costs.

  • All subsidies should be documented in the rate development.

  • All rates should be established to break even.

University of minnesota internal

Billing rates reviewed and updated each year

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


Internal sales rate development
Internal Sales Rate Development


Steps to developing an Internal Sales rate:

  • Measurable unit for goods and services

  • Annual output or expected level of activity

  • Annual estimated costs

  • Breakeven

  • Exclude unallowable costs

  • Appropriate classification and include or Exclude overhead costs

  • Activity per-unit rate

  • Reviewed, updated and submitted to Internal Sales each year

Measurable unit
Measurable Unit


Measurable unit for goods and services

  • In terms of labor, machine time, tangible test, etc.

    (For example, per labor hour, per machine hour, per test, etc.)

  • For units measured in cost per hour, productive time (total time available for the service) should be used, and not total hours

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

University of minnesota internal

Annual Output & Estimated Costs


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

  • All costs should be directly attributable to the functions of the internal sales activity

  • All costs should be allowable under OMB Circular A-21

University of minnesota internal

Operating Costs


Generally, operating costs include:

  • Salaries and fringe benefits of those providing the service

  • Materials and supplies

  • Depreciation associated with capital equipment

  • Equipment repair and maintenance

  • Prior year surpluses and deficits and other required adjustments

University of minnesota internal

Unallowable Costs

  • Exclude Unallowable Costs (a few examples excerpted from )

  • 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

  • membership in any civic or community organization, country or social club


University of minnesota internal

Per Unit Rate

  • Determine the per-unit rate

    • Direct operating costs +/- surplus or deficit

    • Per unit rate = ------------------------------------------------

  • Estimated volume of work



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.


University of minnesota internal


Office of Internal Sales website