Calculating indirect cost
The following is the formula for calculating indirect cost rate, also known as composite rate, per the operating agreement.
Allocated cost centers
Allocated costs centers are used in determining ALA’s total indirect costs and include both direct and indirect costs that are generated in a given area ie operating supplies, telephone, audit/bank fees do not incur indirect costs – direct costs only.
They are units or activities used to determine indirect costs and include the following (*Denotes units or areas that incur both direct and indirect costs):
Production Services (net chargebacks)*
Reprographics (net chargebacks)*
Operating Supplies (net chargebacks)
Equipment Repairs and Maintenance/Lease
Telephone Expense (net chargebacks)
Public Information Office*
Information Technology & Telecommunication Services*
Audit and Bank Fees
Member Programs and Services*
General and Administrative (Council/Administration, Executive Board, Executive Office, Communications AED,
Office Services/Purchasing, and Business Expense).
|Statistics||How calculated||Cost centers|
|F.T.E.'s||08/XX Table of Authorized Positions||Operating Supplies, Human Resources|
|Square Footage||20XX Space Analysis||Building Operations, Huron Plaza, HQ Building and Washington Office|
|Number of Lines||20XX Count||Telephone Expense, Repairs and Maintenance and Leases|
|Inter-Unit Transfers||FY 20XX Expenses||Distribution Center, Reprographics Center and Production Services|
|Number of Members||FY 20XX Statistics||Membership Services/Handbook of Organization|
|Unit Revenue||FY 20XX Audit Statements||Audit and Bank Fees|
|Number of Transactions||Actual||Financial Services|
|Number of PC's||Actual||ITTS|
|Time Allocation||FY 20XX Estimate (%) of Usage||PIO|
The following table lists the departments directly assessed for direct and indirect costs from cost centers.
|Staff/Office Support Services||501|
|Member Programs/Services AED||115/116/200/230|
|Offices & Committees||106/107/108/111/112/114/120/150/151/152|
|Products & Promotions||313|
|Related Interest Groups||903-920|
Four-step calculation process
Calculating indirect cost is a four-step process:
Allocate total ALA expenses to each unit as incurred.
Update allocation methodologies and apply to indirect cost centers (See Allocation Methodology Information Request below).
Determine direct/indirect cost incurred by indirect cost centers (16) after the methodology has been applied. See the Human Resources Expense Allocation worksheet example (Opens an Excel spreadsheet).
Allocate indirect costs and revenue generated by indirect cost formula components as required by Operating Agreement (See Cost Caluclation Formula above).
This sample flow chart illustrates this process using the Human Resources spreadsheet example from a previous fiscal year.
For additional assistance and comments about the information contained in this page, please contact, Keith Brown, Senior Financial Analyst, ALA Finance and Accounting at email@example.com.