Internal/External Sales Rate
Development
Level I
Session Objectives
 Understand the rate development process
 Determine what costs are allowed in the rate
development
 Rate development example
Expected Outcome
Revenue – Expenses = $0
• Expense: cost to perform the activity
• Rate: estimated expense/volume
• Revenue: rate charged x volume
Policy
The purpose of the internal sales rate guidelines is to:
• Comply with Federal regulations defined by Uniform
Guidance
• 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
Internal Sales Requirements
•
•
•
•
•
•
•
Reviewed each year
Updated at least every 2 years
Set to break even
Based on historical sales data
Consistent for all internal customers
Federal government receives the lowest rate
Subsidies must be documented
External Sales Requirements
• Reviewed each year
• Updated in order to recover all direct, indirect
cost
• Additional revenue to market
• Based on historical sales data
• Consistent for all internal customers
Process to developing Rates
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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
Measurable Unit
• In terms of:
– labor, machine time, or tangible product
• Examples:
– per labor hour, per machine hour, per copy, per gallon, per
test, etc.
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 nonbillable time such as vacation, sick leave, holiday, breaks,
equipment downtime, certification and training time
Billable Hours Template
Salary& Fringe recovered using actual hours available to work and invoice (Billable Hours)
Billable Hours is unique to each individual - develop one schedule per
NAME:
person
Fill in hours
in all
yellow cells
(Hours listed in
yellow cells are
estimates only as
an example of
billed
hours)
Rate
based
Description
Full year hours paid
Paid holidays (including one (1) Personal Holiday)
Paid vacation (not available to work)
Paid sick time (not available to work)
Total hours available to work
on Billable
Hours
2,080
88
176
40
1,776
Other non-billable hours:
Personal
Equipment
Training/Staff Meetings
Travel
15 minute breaks per UM
Policy
100
192
96
111
75
Other:
TOTAL
Billable Hours (estimated volume of work)
574
1,202
Labor Rate = Salary & Fringe/Billable Hours
Salary & Fringe
$
80,000
Billable Hours
Salary + Fringe/Billable Hours = Rate per Hour
Billable Hours (hours worked & invoiced)
$
$
1,202
66.56
80,000.00
$
$
80,000
-
Salary & Fringe cost recovered
Note
Note
Note
Note
#1:
#2:
#3:
#4:
Details in determining hours
(52 weeks * 40 hours per week) based on 100% appt.(adjust for partial appt.)
(11 days * 8 hours per day) FY16 est. by campus
(i.e. 22 days * 8 hours per day for P&A) est. vacation expected (Civil Service, Bargaining Unit , P&A)
(i.e. 5 days * 8 hours per day) est. sick expected (Civil Service, Bargaining Unit , P&A)
Bereavement, Religious, Medical/Dental , Voting Leave , Jury Leave…etc.
Repairs, Recal, Maint., Setup... etc.
Training, Staff Meetings, Administrative effort not billed…. etc.
Travel time between meeting during work hours
Two (2) fifteen minutes breaks/day (See UM policy " Rule 10.1 Standard Hours of Work")
Any other absence not noted above
150 working days per year eligible to bill
Last Years' Actual Billed Hours
??
To fully recover total labor cost on a annual basis the billable hours method must be used.
Underestimated billable hours (hours lower and hourly rate is higher) will cause a surplus.
Overestimated billable hours (hours higher and hourly rate is lower) will cause a deficit.
See Job Aide "Calculating Productive Time for Internal /External Sales Rates" for complete list of non-productive time catagories.
Rate Development
• 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
Direct Costs
• 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
Unallowable Costs
•
•
•
•
•
•
•
advertising expenses except for employee and subject recruitment
alcoholic beverages
bad debts
entertainment costs example: Food
goods and services for personal use
interest, fund raising, and investment costs
Memberships not work related
Unallowable Costs
• Unallowable costs will not be paid by the federal
government because they are not directly related to
the benefit of the research project.
• Costs included in the F&A Rate
Per Unit Rate
• Determine the breakeven
– The goal is to break even at the end of the year
• Determine the per-unit rate
Direct costs +/- surplus or deficit
Estimated volume of work
Per Unit Rate Example
• Determine the per-unit rate:
$100 =
$100,000 - $10,000
900
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
What is Allowable?
• 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
What is Allowable?
• Must be consistently applied
– In estimating, accumulating and reporting
costs
– With the institution’s cost accounting
practices
– Allocating costs incurred for the same
purpose
Internal Sales Rate Template
INTERNAL SALES RATE DEVELOPMENT TEMPLATE
1) SAMPLE RATE SHEET - COST PER HOUR (LABOR OR MACHINE) WHERE THE TIME IS NOT DEFINED
To use this spredsheet, please fill in the fields that are highlighted in
Civil Service
A) + Salaries
Civil Service Consultant (per hour)
P&A Supervisor (per hour)
Grad Assistant (per hour)
Job Classification
P&A Supervisor
Employee Group
Civil Service
Faculty / P&A
Grad Assistant.
Employee
Grad Asst
Total
0.00
0.00
0.00
B) + Fringe
Civil Service Consultant (per hour)
P&A Supervisor (per hour)
Grad Assistant (per hour)
YELLOW
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-
0.00
0.00
Total Salaries
0
0
Use appropriate fringe rate for each job class
See website at: www.umn.edu/ohr/payroll
Employee Group
Civil Service
Faculty / P&A
Grad Assistant.
Fringe Rate
0.00
Fringe
Billable Hours
0
0
0
0.00
0.00
0.00
Per Hour Labor Rate
Annual Salary
27.4%
33.7%
22.4%
FY16 Fringe
Rate
27.4%
33.7%
22.4%
$0.00
$0.00
Total Fringe
Complete from last year's UM report.
Expense Allocation(Program/CF2)
Adder Per Hour
Last year's costs
Civil Service
P&A Supervisor
Grad Asst
Civil Service
P&A Supervisor
Grad
Asst
Total
%
C) General Operating Supplies 7201XX
(estimated per hour)
#DIV/0!
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0%
D) Lab & Medical Supplies 7202XX
#DIV/0!
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0%
E) General Operating Services 7203XX
(Including temporary employees)
F) Lab & Medical Services 7204XX
#DIV/0!
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0%
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0%
G) Telecommunications 7205XX
#DIV/0!
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#DIV/0!
0%
H) Travel / Mileage 7206XX
#DIV/0!
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#DIV/0!
#DIV/0!
0%
I) Materials For Resale 7401XX
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
0%
J) Non-Capital Equipment 7501XX
#DIV/0!
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#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
0%
K) ST/LT Rents/Leases 770XXX
#DIV/0!
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#DIV/0!
#DIV/0!
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#DIV/0!
0%
L) Repair/Maint Equipment/Bldg
(7801XX)
#DIV/0!
#DIV/0!
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0%
#DIV/0!
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Rates x Billable Hours
Total Projected Cost Less Depreciation
#DIV/0!
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#DIV/0!
M) Depreciation Cost (Asset mgmt depreciation
schedule) (Per hour, based on billable time)
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
$0.00
FY16
Billable hours for equipment
(less than billable hours for workers)
N) = Total Costs (per hour)
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
O) + / - Carryforward Surplus Or Deficit
#DIV/0!
#DIV/0!
#DIV/0!
#DIV/0!
$0.00
P) - Subsidy (per hour)
Q) Hourly Rate Charged To Internal Customers
#DIV/0!
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#DIV/0!
S) External Rate
#DIV/0!
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#DIV/0!
T) Market Rate
See CarryFwd Recon Tab
#DIV/0!
$0.00
Total Subsidy
#DIV/0!
#DIV/0!
#DIV/0!
R) Added Indirect Cost / Overhead / Additional
Revenue Per Hour
$0.00
Total Internal Revenue
% of cost
Forecasted billable hours
Last year's hours actually invoiced
0.0
Difference
0.0
U) Last Year's Rates
Procedure & Website
Internal Sales EFS website:
http://www.finsys.umn.edu/sales/iso.html
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Policies
Procedures
Presentations
Job Aids
Training Modules
Questions?
Office of Internal Sales website:
http://finsys.umn.edu/sales/iso.html
This presentation is posted on the site.