According to Office of Management and Budget Circular A-21, direct costs are those costs that can be identified specifically with a particular sponsored project, an institutional activity or that can be directly assigned to such activities relatively easily and with a high degree of accuracy. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or facilities and administrative costs (formerly indirect costs). 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 should be treated as direct costs of all activities of the institution. Itemized direct costs are line items specified in the grant or contract. They can include direct salaries of persons working on the grant, applicable fringe benefits, travel directly associated with the project, supplies specifically used on the project, contractual services and equipment. The PI or his/her designee must sign all vouchers used to process direct costs. A designee must possess technical knowledge of the research being performed.
In order for a cost to be charged as a direct cost, it must be allowable. To be considered allowable, the cost must meet all of the following federally assigned criteria:
Relatively easily — Assigning a cost relatively easily does not take a lot of time; most people can comprehend/relate to the allocation method; and the benefit to the project is evident.
High degree of accuracy — Identifying a cost with a high degree of accuracy shows a one-to-one relationship of the cost to the project and there is a distinct and actual measurement.
Reasonable — A cost is reasonable if the nature and amount involved reflect the action that a prudent person would have taken.
Allocable — A cost is allocable if it is incurred solely to advance the work under the sponsored agreement; it benefits the sponsored agreement and other work of the institution; or it is necessary to the overall operation of the institution and is deemed to be assignable in part to sponsored projects.