Costing Policy & Analysis

F&A Rate Application Examples

Calculating F&A Costs for a Budget

The following examples illustrate how to calculate F&A (indirect) costs for a budget, using the correct F&A base.

Example 1
F&A RATE/BASE: 48.5% OF MODIFIED TOTAL DIRECT COST
TOTAL AMOUNT AWARDED: $100,000
DIRECT COSTS EXEMPT FROM INDIRECTS: $10,000
  DIRECT COSTS F&A   DIRECT + F&A COSTS
SALARIES 40,000 19,400  
SUPPLIES 8,406 4,077  
TRAVEL 3,000 1,455  
BENEFITS 9,200 4,462  
EQUIPMENT 10,000 0  
TOTAL 70,606 29,394 (A) 100,000
Calculation of F&A Recovery:
To determine the modified total direct costs subject to indirects, divide the total amount of the award less the amount not subject to indirects (equipment) by 1.485:
($100,000 - $10,000)/1.485 = $60,606 (which is funding amount available for direct costs)
Total direct costs subject to assessment = $60,606  
Multiply by F&A rate x .485  
Total F&A costs $29,394 (A)
Example 2
F&A RATE/BASE: 10% OF TOTAL DIRECT COST
TOTAL AMOUNT AWARDED: $100,000
  DIRECT COSTS F&A   DIRECT + F&A COSTS
SALARIES 50,000 5,000  
SUPPLIES 10,000 1,000  
TRAVEL 2,000 200  
BENEFITS 11,500 1,150  
EQUIPMENT 17,409 1,741  
TOTAL 90,909 9,091 (B) 100,000
Calculation of F&A Recovery:
To determine the total direct costs for this award divide the total amount of the award by 1.10%:
$100,000/1.10 = $90,909

When calculating F&A based on TOTAL DIRECT COSTS, the F&A will be applied to ALL direct costs.

Total direct costs subject to assessment = $90,909  
Multiply by F&A rate x .10  
Total F&A costs $9,091 (B)
Example 3
F&A RATE/BASE: 20% OF TOTAL COST
TOTAL AMOUNT AWARDED: $100,000
  DIRECT COSTS F&A   DIRECT + F&A COSTS
SALARIES 50,000 12,500  
SUPPLIES 10,000 2,500  
TRAVEL 1,000 250  
BENEFITS 11,500 2,875  
EQUIPMENT 7,500 1,875  
TOTAL 80,000 20,000 (C) 100,000
Calculation of F&A Recovery:
When calculating F&A based on TOTAL COSTS, the F&A rate applied to the direct costs must be converted to a rate which will produce the correct recovery. In example 3 above, the F&A rate of 20% is applied to the TOTAL COST of the project. ALL costs are included in the calculation (including F&A). Following is the calculation to determine the actual rate to be used for assessing the indirects and determining the amount to be budgeted for both direct and indirect costs:

Total costs of $100,000 x 20% = $20,000
Total costs of $100,000 - $20,000 = $80,000 (direct costs that can be assessed)
$20,000/$80,000 = 25% (the F&A rate that will be used in calculating the F&A recovery)

Total direct costs subject to assessment = $80,000  
Multiply by F&A rate x .25  
Total F&A costs $20,000 (C)

Top

Rebudgeting with F&A Costs

Scenario 1

Rebudget from a budget consolidation not subject to indirect cost recovery to a budget consolidation which is subject to indirect cost recovery.

In this scenario, the rebudget will involve calculating an amount for the indirects which will be assessed on the budget consolidation.

Example: PI wants to increase her supplies budget by $5,000 and will rebudget from funds available in her equipment budget. This agreement is under the Federal Demonstration Partnership (FDP) and the rebudgeting does not represent a change in scope in the project. The budget adjustment must include an amount for indirect cost recovery assessment. In this case the PI must include a rebudget entry to cover the indirect costs that will be assessed when the direct charges for the supply expenditures occur.

Question: What amount should be rebudgeted from the equipment consolidation (SUB4)?

F&A rate:   48.50%   Calculation:
Amount to transfer to supplies:   $5,000    
Transfer from: SUB4 $7,425 Debit $5,000 + ($5,000 x 48.5%) = $7,425
Transfer to: SUB3 $5,000 Credit $5,000
INDR $2,425 Credit $5,000 x 48.5% = $2,425

Answer: $7,425 must be rebudgeted from the equipment consolidation to cover $5,000 of supplies expense as well as the the additional amount of indirects ($2,425) associated with the supply expenditures.

Scenario 2

Rebudgeting a specified, not to exceed, amount from a budget consolidation which is not subject to indirect cost recovery to a budget consolidation which is subject to indirect cost recovery.

In this scenario, the rebudget will involve calculating an amount for the indirects (INDR) which will be assessed on the budget consolidation.

Example: PI has only $5,000 remaining budget available and this balance resides in the equipment (SUB4) expense category. Equipment purchases are no longer required on the project and the PI has been granted approval by the sponsor to rebudget from equipment to travel (SUB5) to attend a conference and present a research paper. The research administrator must prepare a budget adjustment for the exact amount of funds available ($5,000).

Question: How much funding is available to the researcher to spend on travel costs?

F&A rate:   48.50%   Calculation:
Transfer amount not to exceed:   $5,000    
Transfer from: SUB4 $5,000 Debit $5,000
Transfer to: SUB5 $3,367 Credit $5,000/1.485 = $3,367
INDR $1,633 Credit $3,367 x 48.5% = $1,633

Answer: There is $3,367 available for travel costs.

Scenario 3

Rebudgeting a specified, not to exceed, amount from a budget consolidation which is subject to indirect assessment to a budget consolidation which is not subject to indirect assessment.

In this scenario, the rebudget will include an adjustment for a reduction in indirect cost recovery.

Example: PI receives agency approval to purchase a piece of equipment in the amount of $5,000 which had not been included in his original budget submission. The PI wants exactly $5,000 transferred to equipment and no more. He has sufficient funds available in the supplies budget to accommodate the transfer. Because supplies (SUB3) expenditures are subject to indirects (INDR) and equipment purchases (SUB4) are exempt, the research administrator will need to calculate the amount of indirect "savings" which will result from rebudgeting to an expense category which is exempt from indirect assessment.

Question: How much will the supplies budget (SUB3) be reduced for this transfer of $5,000 to equipment?

F&A rate:   48.50%   Calculation:
Transfer amount to equipment:   $5,000    
Transfer from: SUB3 $3,367 Debit $5,000/1.485 = $3,367
  INDR $1,633 Debit $3,367 x 48.5% = $1,633
Transfer to: SUB4 $5,000 Credit $5,000

Answer: The supplies budget will only be reduced $3,367 because this transfer "frees up" the indirects associated with the reduction in the supply expenditures which are subject to indirects.

Scenario 4

Rebudgeting a specified amount from a budget consolidation which is subject to indirect assessment to a budget consolidation which is not subject to indirect assessment.

In this scenario, the rebudget will include an adjustment for a reduction in indirect cost recovery.

Example: PI has an award under FDP and decides to rebudget $5,000 from supplies (SUB3). Because the supplies expenditures are subject to indirects and equipment purchases are exempt, the research administrator will inform the PI that her rebudget request will result in "freeing up" indirects (INDR) for an additional amount above the $5,000 to transfer to equipment (SUB4).

Question: How much funding will be available to the PI for equipment expenditures by reducing his supplies budget by $5,000?

F&A rate:   48.50%   Calculation:
Transfer amount from supplies:   $5,000    
Transfer from: SUB3 $5,000 Debit $5,000
  INDR $2,425 Debit $5,000 x 48.5% = $2,425
Transfer to: SUB3 $7,425 Credit $5,000 + ($5000 x 48.5%) = $7,425

Answer: The PI frees up an additional $2,425 from indirects for his equipment purchases by rebudgeting from an expense category subject to indirects to an expense category exempt from indirect assessment, resulting in $7,425 available for equipment purchases.

Top

Supplemental content

Costing Policy & Analysis