Cost Principles provide guidance for determining eligible
costs and whether those costs are direct or indirect.
• Outlined in detail in OMB Circular A-21 “Cost
Principles for Educational Institutions”.
• Ensure conformance to federal requirements and
avoid costly audit findings.
• Require sound management practices and accepted
accounting systems to adequately document expenses.
Direct Costs + Indirect Cost – Applicable Credits =
Total Cost
*Applicable credits are rarely encountered and difficult to
anticipate during budget development. Additional information
is included in Section C.5 of OMB Circular A-21.
Costs must be:
• Reasonable
• Allocable
• Consistent
• Allowable
Reasonable
• Costs not exceeding those a prudent person would incur
in a similar situation.
• Costs necessary for performance of project.
• Require practical purchase price, proper purchasing
procedures, consistency with ethical business practice and
institutional policy.
Allocable
• Costs that directly or indirectly benefit project.
• Incurred specifically as a result of the project, benefit
both the project and institution, or necessary for
overall institution operation but also assignable to
sponsored project.
• Normally identify with a specific project objective.
Consistent
• Costs must be treated in a similar manner in
other institutional business practices.
• Costs cannot be both direct and indirect.
• If a cost is considered indirect under one
institutional project, it must be indirect under all.
Allowable
• Costs that are reasonable, allocable, and consistent.
• Subject to limitations or exclusions of funder.
• Cannot be used as matching for any other federallyfunded project.
• Must be adequately documented.
• Expenses that are always unallowable include
alcoholic beverages, entertainment, promotional
items, and general advertising/public relations.
Expenses clearly assignable to project and identifiable
with a high degree of accuracy.
• Purpose, not nature, of goods and services must be
considered.
• Technical costs including salaries, wages, benefits,
travel, and equipment.
• A cost passing tests of reasonability, allocability,
consistency, and allowability is normally direct.
Expenses not readily identifiable or assignable to a specific
project but necessary to ensure project completion.
• Also known as “Facility and Administration” Costs (F&A).
• Clerical support, office equipment and supplies,
local phone service, facility space, and utilities.
• Expenses assigned as indirect costs cannot also be
charged as direct costs.
Negotiated or specified rate applied to direct costs
to determine indirect costs.
• Percentage of eligible direct costs.
• Based on “Modified Total Direct Cost” (MTDC).
• Does not include cost of equipment, offsite facility rental, tuition remission, or
cost of sub-awards in excess of $25,000
each.
• Allowable when services are beyond grantee’s capabilities.
• Must be specified and included in original project budget.
• Indirect cost rate only applicable to first $25,000 of each
sub-award.
Salaries and Wages: Direct.
• Provided individual is not included in indirect cost rate and
total time assigned to all sponsored projects does not
exceed 100% of paid work hours.
Fringe Benefits: Direct.
• Based on percentage of total salaries charged to project as
calculated annually by institution.
Equipment: Treatment varies based on item.
•Items exceeding one year useful life and cost of $5,000
including modifications, accessories, taxes, and
shipping.
•Special Purpose: Direct. Used for research, technical
activities, or purposes directly related to project.
•General Purpose: Indirect. Can serve purposes other
than those directly related to project.
Travel: Direct.
• Includes transportation, lodging, subsistence, and related
costs based on per diem or actual costs.
• Necessary for completion of project or reporting findings.
• Air travel must be at coach rate and via a U.S.-owned
carrier.
Professional Services/Consultants: Direct.
• Activities cannot be completed by institutional staff.
• Specified in budget.
• Total compensation not to exceed normal rate of
consultant or limits set by funder.
Publications, Documentation, Dissemination: Direct.
• Expenses must be leveled impartially on all papers
published by journal in question.
• Documents for training purposes are allowable.
Meetings and Conferences: Direct.
• Must be included in project budget.
• Facility rental, supplies, publications, services, food, and
speaker fees are allowable.
• Entertainment, social activities, and alcoholic beverages
are unallowable.
Participant Support Costs: Direct.
• Trainees, study participants, etc.
• Stipends, travel, registration fees, printed materials,
etc.
• Does not include Cooperative Extension employees.
Materials and Supplies: Direct.
• Useful life of less than one year and cost less than
$5,000, including taxes and shipping.
Sub-Awards: Direct.
• Only first $25,000 of each award applicable to indirect
cost rate.
Advertising and Public Relations: Direct.
• Only to extent they are involved in educational message
dissemination.
• General advertising, promotional items, and incentive
items are excluded.
All Direct
Advisory Councils
Bonding
Communications directly related to project
Insurance required for project
Maintenance and Repairs
Memberships directly related to project
Rearrangement/Alteration of facilities as
approved by sponsor
• Pre-agreement costs as approved by sponsor
• Rental necessary for completion of project
• Scholarships/Aid
• Tuition Remission
• Specialized Services
• Training
• Freight/Postage necessary for project and
exceeding normal operations
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Administrative Expense
Depreciation
Employee Welfare
Proposal Costs
Taxes not on eligible items
Clerical Support
Office Equipment
General Supplies
Telecommunications
Office Use
Custodial Service
Library Services
General Insurance
Memberships not directly related to project
General freight/postage
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Alcoholic Beverages
Alumni Activities
Debt Service
Contingencies
Donations*
Entertainment
Fund Raising
Goods and Services for personal use
Living Expenses
Losses on sponsored projects
Selling/Marketing
*Value of Donations allowable in cost sharing situations.