All billing rates should be constructed to recover total costs. This includes both direct, and indirect costs paid by the billing department. Indirect costs not distributed as part of the billing rate should be treated as overhead and distributed as part of the overall University general and administrative overhead expense.
A use or depreciation allowance should be included for operating equipment. Major equipment items may need to be lease-purchased or purchased on installment, since the University generally cannot accumulate and carry forward unrestricted funds for such purposes.
The billing rates should be developed by the billing department and submitted to the Managerial Accounting Office for review and to be submitted to the Office of the President for approval. The Managerial Accounting Office will review all rates and will either recommend their acceptance, recommend adjustments, or construct alternative rates based on the above criteria and cost information supplied by the department. The following is a discussion of some of the unique items in each of the operations of Business and Finance:
Cost Recovery Operations
In setting insurance premiums, only the cost of premiums (estimated, if actual is not available at the time of billing) should be charged to non-Educational and General fund sources and certain self-supporting operations within the E&G budget. Costs for the operation of the Risk Management Office should be allocated as part of the University general and administrative overhead.
Facilities Maintenance And Operation:
A separate rate should be constructed for each billing shop. Included in the rate are direct costs and applicable indirect costs. The rates will be constructed to recover total costs. However, in order to remain competitive with outside vendors, the University may discount the rate when billing the campus.
In addition to the actual costs of local service, long distance and equipment ordered by University departments, an overhead amount should be added to departmental billings to recover the current operating costs of the Communications Office. University-wide infrastructure (fiber optics, cable, etc.) costs should not be included in monthly billings to departments. Infrastructure costs identifiable with auxiliaries should be funded by that enterprise.
Billing rates should reflect total operating costs. Included in the rate is an operating equipment use allowance, or depreciation charge, based on the expected life of the equipment. As previously mentioned, major equipment purchases should be financed or lease-purchased. A survey of outside vendors offering similar services may also be made to compare the rates developed by the University.
Actual cost of postage and shipping and handling should be billed to University departments. Standard postal box rates should be used for billing students. Regular operational costs will be distributed as part of the University general and administrative overhead and, therefore, should be a part of the billing rate.
Mileage (vehicle rate) or hourly (shop rate) rates which cover total costs will be charged. Included in the rate are the cost of supplies, parts, labor and depreciation of equipment, which provides an amount for the replacement of vehicles. This replacement amount will be accumulated and carried forward as a reserve until needed. (Note: The state has mandated motor pool shop labor rates be computed utilizing the state computation formula.)
When constructing University billing rates, total costs will be the basis. These costs should be clearly identified, accurate, reasonable, and include indirect cost paid by the billing department. Outside vendor rates may be surveyed, but should not be a basis for constructing University rates. Rates should be developed to recover costs (including replacement cost of vehicles). Therefore, amounts should not be added to the rate to cover contingencies.