An allowable cost is one that is permitted under the terms and conditions of the sponsored agreement. Examples of terms and conditions include costs must be incurred within the project effective dates and must be in accordance with the approved project budget. Uniform Guidance Subpart E lists four general tests for allowability.
|Four Tests of Allowability for Costs
1. Costs must be reasonable.
A reasonable cost results from an action that a prudent person would have taken under the prevailing circumstances at the time the decision to incur the cost was made. In addition, a reasonable cost is necessary to the performance of the sponsored agreement.
2. Costs must be allocable.
Allocability of cost involves an assessment of the relative benefits received from the incurrence of the cost.
3. Costs must be given consistent treatment.
According to Uniform Guidance, where an institution treats a particular type of cost as a direct cost of sponsored agreements, all costs incurred for the same purpose in like circumstances must be treated as direct costs of all activities of the institution. Consistent also refers to the costing or pricing methods used by the institution. The institution must use the same costing or pricing methods for all costs. For example, it is not permissible for UMBC to charge more for a cost assigned to a grant than it charges for that same cost when assigned to a UMBC state account.
4. Costs must conform to any limitations or exclusions set forth in Uniform Guidance or in the sponsored agreement.
Per Uniform Guidance, examples of normally allowable costs include:
- Salaries of technical staff working on the project
- Laboratory supplies used on the project
- Long distance telephone charges associated with the project
- Printing and duplicating reports for the project
- Animal and animal care related to the project
- Travel in support of the project
- Research equipment repair and maintenance costs.