Transcript University of Minnesota Internal/External Sales Internal Sales Rate Development Level I Learning Objectives • Understand the rate development process • Determine what costs are allowed.

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
• Questions at anytime during the presentation
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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
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Internal Sales Rate Development
Procedure and Website
Internal Sales EFS website:
http://www.finsys.umn.edu/sales/iso.html
– Policies
– Procedures
– Presentations
– Job Aids
– Training Modules
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Internal Sales Rate Policy
The purpose of the internal sales rate guidelines is to:
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•
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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.
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Principles for Internal Sales Rates
•
•
•
•
•
•
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
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Internal Sales Rate Development
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
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Measurable Unit
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.
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Productive Time
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.
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Billable Hours Template
Salary& Fringe recovered using hours available to actually work and invoice (Billable Hours)
Billable hours is unique to each individual - develop one schedule per person
Description
Rate based on Billable Hours
Full year hours paid
2080
Paid holidays (not available to work)
(88)
Paid vacation (not available to work)
(176)
Paid sick time (not available to work)
Total hours available to work
(88)
(22 days * 8 hours per day) est.
vacation expected
(216)
(training, breaks, administration, meetings etc.)
Billable hours (estimated volume of work)
(30 minutes a day for breaks)
1,512
$
100,000
Billable hours
Salary + Fringe/Billable Hours = Rate per hour
1512
$
66.14
Billable Hours (hours worked & invoiced)
Salary & fringe cost recovered
(11 days * 8 hours per day) est. sick
expected
216working days
(1 hour per day * working days)
Labor Rate = Salary & fringe/billable hours
Salary & fringe
(52 weeks * 40 hours per week) based
on 100% appt.
(11 days * 8 hours per day) FY14 est.
by campus
1728
Any other non-billable hours
Details in determining hours
X 1512
$
100,000
Note #1: To fully recover total labor cost on a annual basis the billable hours method must be used.
Note #2: Underestimated billable hours (hours lower and hourly rate is higher) will cause a surplus.
Note #3: Overestimated billable hours (hours higher and hourly rate is lower) will cause a deficit.
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Billable Hours Example
Salary& Fringe recovered using hours paid (2080) vs. hours available to actually work and invoice (billable hours)
Rate based on Hours
Paid - Salary only
2080
-
Description
Full year hours paid
Paid holidays (not available to work)
Paid vacation (not available to work)
Paid sick time (not available to work)
Total hours available to work
-
Any other non-billable hours
(training, breaks, administration, meetings etc.)
-
74,403
$
35.77
Amount desired to recover
Salary & fringe cost recovered
Amount not recovered
100,000
54,336
(45,664)
(217)
2080
$
100,000
$
48.08
$ 100,000
1519
$
65.83
X 1519
$
$
$
100,000
73,029
(26,971)
Note: In order to fully recover total labor cost on a annual basis the billable hours method should be used.
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X 1519
$ 100,000
$ 100,000
$
-
Definition
(52 weeks * 40 hours per week)
(11 days * 8 hours per day)
(22 days * 8 hours per day)
(10 days * 8 hours per day)
217working days
(1 hour per day * working days)
1519
2080
X 1519
$
$
$
1736
-
2080
Billable Hours (hours worked & invoiced)
(80)
2080
2,080
$
$
Rate based on
Billable Hours
2080
(88)
(176)
2080
Billable hours (estimated volume of work)
Labor Rate = Salary & fringe/billable hours
Salary & fringe
Salary only at .336 fringe rate
Billable hours
Rate per hour
Rate based on Hours
Paid Salary & Fringe
2080
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Rate Development (cont.)
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
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Direct Costs
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
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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
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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.
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Per Unit Rate
Determine the breakeven
– The goal is to breakeven at the end of the year
Determine the per-unit rate
Per unit rate =
Direct costs +/- surplus or deficit
------------------------------------------Estimated volume of work
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Per Unit Rate Example
Example:
Determine the per-unit rate
$100 =
$100,000 -10,000
-------------------------900
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What is Allowable?
Cost of an activity is comprised of the allowable
direct costs required for the performance of the
activity
• 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
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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
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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
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Internal Sales Rate Template
To use this spredsheet, please fill in the fields that are highlighted in YELLOW
Project A
Project B
Applicable to all
Projects
Number of Available Hours
Civil Service Consultant
Faculty / P&A
Grad Assistant
+ Salaries
Civil Service Consultant (total time)
P&A Supervisor (total time)
Grad Assistant (total time)
500
100
512
1000
100
512
28,506
4,848
8,250
7,241
4,848
-
+ Fringe
Academic
Non-Academic
Grad Assistant (total time)
4,832
1,280
1,386
9,664
1,280
1,386
2,455
1,280
-
+ Supplies (estimated)
2,500
-
-
+ Equipment Use Costs (estimated)
Depreciation, maintenance, etc
allocated based on total usage
4,000
-
-
+ Allocation of General Costs
6,604
9,574
(16,178)
41,349
53,934
5,000
12,000
8.27
4.49
/ Number of Units (hours, tests, etc)
Total cost per unit
$
What is the annual salary for
consultant 2 (Faculty / P&A)?
$
What is the annual salary for
consultant 3 (Grad Assistant)?
$
What are the available hours for
50,000 these individuals ('billable hours,' 1754
exclusive of vacation and sick
days, training time, and other non80,000 related hours).
1650
SEE
"BILLABLE HOURS" TAB FOR
16,500 ASSISTANCE.
1024
254
100
0
14,253
4,848
8,250
= Total Service Costs
What is the annual salary for
consultant 1 (Civil Service)?
Use appropriate fringe rate for each job class
See website at: www.umn.edu/ohr/payroll
33.9% * salary from above
26.4% * salary from above
16.8% * salary from above
Applicable to all Services
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(FY11 Rates)
Questions?
Office of Internal Sales website
http://finsys.umn.edu/sales/iso.html
This presentation is posted on the site.
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