The charge-out rates for centers should be computed annually. In a simple situation, the rate computation is a two-step process. First, develop an annual expense budget which could include salaries, materials, supplies, depreciation and other expenses necessary to operate the center for the next year. Second, divide the expenses by the amount of usage (units) expected for each center. Rates for internal and Federal customers should be set so that the revenue does not exceed the cost of providing the good or service. The University is subject to periodic audit by the Federal government to assure they receive the lowest price offered by the center. The following is an example of a financial statement that can be used as a template for setting an annual revenue and expense budget.
|4403||Federal Internal Sales||55,000|
|5202||P&S Salaries Regular||32,000|
|5302||P&S Benefits P&S Regular||13,500|
|6081||Computers & Smart Devices <$5,000||75|
|6082||Printers, Peripheral Devices <$5,000||60|
|6085||Equipment Purchases Non-Capitalized||1,700|
|6090||Medical Care Supplies||1,500|
|6115||Non-Clinical Lab Supplies||4,000|
|6215||Internally Provided Computing||70|
|6265||Repair / Maintenance Equipment||15,000|
|6270||Telecommunications Fixed Charges||200|
|6275||Telecommunication Variable Charges||300|
|6405||Duties, License and Miscellaneous Fees||50|
|6407||IT Software Maintenance & Fees||2,700|
|7560||Transfer Renewals / Replacements||27,000|
|Total Year-To-Date Income / (Loss)||(3,055)|
|Balance Forward / Ending Balance|
|Ending Fund Balance (Prior Year)||5,000|
|Total Year-To-Date Income / (Loss)||(3,055)|
|Ending Balance (Current Year)||1,945|
Unallowable costs cannot be included in rates. Expenses such as bad debts, entertainment costs, fines, and contributions are considered unallowable. A more complete list of unallowable expenses can be found in OMB Uniform Guidance. Also, as mentioned in the “Plant Fund Reserve” section above, the acquisition cost of capital equipment is considered unallowable. Instead, only the applicable depreciation expense should be included in the rate calculation.
Separate billing rates must be developed for distinctive types of goods/services when the sales volume is significant and the cost of providing the good/service is substantially different from other goods/services. This assures that one group of users is not overcharged to offset lower prices of others.
Billing rates should not discriminate between Federal and Non-Federal users including internal University activities. The schedule of rates will apply to all users of the center on the basis of actual utilization and cannot discriminate against any one segment of the population. Volume discounts and other special pricing mechanisms must be equally available to all potential users. The University is subject to periodic audit by the Federal government to assure that grants and contracts receive the lowest price offered by the center. If discounts are considered discriminatory to the Federal government, the center must receive a subsidy to cover that activity. Free usage is considered a discount.
- Lump sum subsidies (transfers in) - When rates are calculated, estimated expenses should be decreased by the amount of the potential subsidy prior to dividing by the expected units.
- Expenses paid outside the center should not be included in the rate calculation because they are being paid by another source.
External rates can be higher than internal or Federal rates. The profit (surplus) realized does not have to be used to reduce following years rates; however, the surplus does need to be identifiable on an ongoing basis. The recommended option is to transfer the profit portion to the plant fund reserve account. Another option is to use the surplus to reduce future year’s rates. If the center wishes to propose other uses for the profit, it must contact the Division of Financial Analysis for prior review. If external sales are significant, the center may need to be evaluated for potential Unrelated Business Income Tax (UBIT) issues.
Ideally, prior year surpluses or losses should be included in the rate computation for the next year. A surplus would reduce subsequent year pricing and a deficit would require an increase in subsequent year pricing. It is acceptable to include portions of surpluses or losses in the rate calculation to show progress toward the break even goal instead of including the entire amount in one year. As stated in the “Fund Balance” section, the Division of Financial Analysis will work with those in excess of the 10% threshold (positive or negative).