The applicable Facilities and Administration (F&A) rate is not applied to certain costs or expenses often found within a sponsored project budget. The Modified Total Direct Costs (MTDC) base shall exclude equipment, capital expenditures, charges for patient care, tuition remission, rental costs of off-site facilities, scholarships and fellowships as well as the portion of each sub-grant and subcontract in excess of $25,000.
What are indirect costs?
Indirect costs are costs that are not directly accountable to a cost object (such as a particular function or product). Indirect costs may be either fixed or variable. Indirect costs include administration, personnel and security costs, and are also known as overhead. These are those costs which are not related to production.
There are two types of Indirect Costs:
1.) Fixed Indirect Costs, which contains activities or costs that are fixed for a particular project or company like transportation of labor to working site, building temporary roads etc.
2.) Recurring Indirect Costs, which contains activities that repeat for a particular company like Maintenance of Records or payment of Salaries
Indirect costs are business expenses that are not directly related to a particular product or function within the general operation. Costs of this type tend to have an impact on the overall operation of the business, making it very difficult to charge the costs to a specific department or associate them with one function. Costs of this type are sometimes referred to as overhead, a term that helps to describe the broad application of these costs.
There are many examples of indirect costs that occur in both small and large businesses. General supplies for the administration of the business is one example. Items such as paper, pens, and other essentials that are utilized in the record keeping and general clerical functions of each department are often classified as an indirect cost. In like manner, services such as auditing the accounting books or the preparation of legal documents are expenses that impact the entire operation and are usually considered indirect in nature.
Several of the expenses related to the upkeep and maintenance of business facilities are considered indirect costs. Utilities such as electricity, water, and Internet access are expenses that benefit the business in general and thus are classified as overhead expenses. In like manner, the cost of renting or leasing business space is also part of the overhead, making it an indirect cost.