university of minnesota internal/external sales internal sales rate development level i
TRANSCRIPT
University of Minnesota
Internal/External Sales
Internal Sales Rate Development
Level I
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• Walk through a rate development example
• Understand the rate development process
• Determine what costs are allowed in the rate development
Learning Objectives
• Questions at anytime during the presentation
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Expected Outcome
Revenue – Expenses = $0 at the end of the Fiscals Year
• Revenue is the rate charged times the volume
• Rate is estimated expense/volume
• Expense is the cost to perform the activity
Note: any allowable variance is included in next year’s rate
Internal Sales EFS website:
http://www.finsys.umn.edu/sales/iso.html– Policies– Procedures– Presentations– Job Aids– Training Modules
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Internal Sales Rate Development Procedure and Website
The purpose of the internal sales rate guidelines is to:
• Comply with Federal regulations• Sold at rates that fully cover, but do not exceed costs • Subsidies are documented in the rate development. • All rates should be established to break even.
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Internal Sales Rate Policy
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• Reviewed and updated each year• Set to break even• Based on historical sales data• Consistent for all internal customers• Federal government receives the lowest rate• Subsidies must be documented
Principles for Internal Sales Rates
Steps to developing an Internal Sales rate:• Measurable unit • Expected level of activity• Annual estimated costs• Breakeven• Exclude unallowable costs• Direct vs. overhead costs• Activity per-unit rate• Reviewed and updated each year
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Internal Sales Rate Development
Measurable unit for goods and services• In terms of labor, machine time, or tangible product.
Examples: per labor hour, per machine hour, per copy, per gallon, per test, etc.
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Measurable Unit
For units measured in cost per hour, productive time (total time available for the service) should be used, and not total hours– Productive time (billable hours) is total time, less
non-billable time such as vacation, sick leave, holiday, breaks, equipment downtime, certification and training time.
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Productive Time
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Billable Hours TemplateSalary& Fringe recovered using hours available to actually work and invoice (Billable Hours)
Billable hours is unique to each individual - develop one schedule per person
Description Rate based on Billable Hours Details in determining hours
Full year hours paid 2080(52 weeks * 40 hours per week) based on 100% appt.
Paid holidays (not available to work) (88)(11 days * 8 hours per day) FY14 est. by campus
Paid vacation (not available to work) (176)(22 days * 8 hours per day) est. vacation expected
Paid sick time (not available to work) (88)(11 days * 8 hours per day) est. sick expected
Total hours available to work 1728 216working days
Any other non-billable hours (216) (1 hour per day * working days)
(training, breaks, administration, meetings etc.) (30 minutes a day for breaks)
Billable hours (estimated volume of work) 1,512
Labor Rate = Salary & fringe/billable hours
Salary & fringe $ 100,000
Billable hours 1512
Salary + Fringe/Billable Hours = Rate per hour $ 66.14
Billable Hours (hours worked & invoiced) X 1512
Salary & fringe cost recovered $ 100,000
Note #1: To fully recover total labor cost on a annual basis the billable hours method must be used.
Note #2: Underestimated billable hours (hours lower and hourly rate is higher) will cause a surplus.
Note #3: Overestimated billable hours (hours higher and hourly rate is lower) will cause a deficit.
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Billable Hours Example
Salary& Fringe recovered using hours paid (2080) vs. hours available to actually work and invoice (billable hours)
DescriptionRate based on Hours
Paid - Salary onlyRate based on Hours Paid Salary & Fringe
Rate based on Billable Hours Definition
Full year hours paid 2080 2080 2080 (52 weeks * 40 hours per week)
Paid holidays (not available to work) - - (88) (11 days * 8 hours per day)
Paid vacation (not available to work) - - (176) (22 days * 8 hours per day)
Paid sick time (not available to work) - - (80) (10 days * 8 hours per day)
Total hours available to work 2080 2080 1736 217working days
Any other non-billable hours - - (217) (1 hour per day * working days)
(training, breaks, administration, meetings etc.)
Billable hours (estimated volume of work) 2,080 2080 1519
Labor Rate = Salary & fringe/billable hours
Salary & fringe $ - $ 100,000 $ 100,000
Salary only at .336 fringe rate $ 74,403
Billable hours 2080 2080 1519
Rate per hour $ 35.77 $ 48.08 $ 65.83
Billable Hours (hours worked & invoiced) X 1519 X 1519 X 1519
Amount desired to recover $ 100,000 $ 100,000 $ 100,000
Salary & fringe cost recovered $ 54,336 $ 73,029 $ 100,000
Amount not recovered $ (45,664) $ (26,971) $ -
Note: In order to fully recover total labor cost on a annual basis the billable hours method should be used.
Annual output or expected level of activity– Estimate the expected volume / level of activity,
by using past results or survey likely customers
Annual estimated costs– Costs should be directly attributable to the
functions of the sales activity– Costs should be allowable
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Rate Development (cont.)
Direct costs include:– Salaries and fringe benefits of those providing the
service or directly supporting the activity – Materials and supplies– Depreciation on capital equipment– Equipment repair and maintenance (service contracts)– Prior year surpluses and deficits and other required
adjustments
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Direct Costs
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Exclude Unallowable Costs •advertising expenses except for employee and subject recruitment •alcoholic beverages •bad debts •entertainment costs •goods and services for personal use •interest, fund raising, and investment costs•Memberships not work related
See handout: Unallowable Internal Sales Costs
Unallowable Costs
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Exclude Unallowable Costs
The general premise for unallowable costs is that the federal government will not pay for certain costs that they believe are not directly related to the benefit of the research project.
Unallowable Costs
Determine the breakeven– The goal is to breakeven at the end of the year
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Per Unit Rate
Determine the per-unit rate
Direct costs +/- surplus or deficitPer unit rate =
-------------------------------------------
Estimated volume of work
Example:
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Per Unit Rate Example
Determine the per-unit rate
$100,000 -10,000 $100 = --------------------------
900
Cost of an activity is comprised of the allowable direct costs required for the performance of the activity
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What is Allowable?
•Must be reasonable- Necessary for the performance of the activity- Considering the interests of the institution- Does not violate institutional principles- Charge can be reasonably explained as necessary
to complete activity
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What is Allowable? (cont.)
•Must be allocable to the specified activity- Assigned percentage based on the benefits received- Incurred to advance the work of the activity- Costs cannot be shifted to other activities to cover
deficits
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What is Allowable? (cont.)
•Must be consistently applied- In estimating, accumulating and reporting
costs- With the institution’s cost accounting
practices- Allocating costs incurred for the same
purpose
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Internal Sales Rate TemplateTo use this spredsheet, please fill in the fields that are highlighted in YELLOW
What is the annual salary for consultant 1 (Civil Service)? 50,000$ 1754
Project A Project BApplicable to all
Projects What is the annual salary for consultant 2 (Faculty / P&A)? 80,000$ 1650
Number of Available Hours What is the annual salary for consultant 3 (Grad Assistant)? 16,500$ 1024
Civil Service Consultant 500 1000 254 Faculty / P&A 100 100 100Grad Assistant 512 512 0
+ Salaries
Civil Service Consultant (total time) 14,253 28,506 7,241 P&A Supervisor (total time) 4,848 4,848 4,848 Grad Assistant (total time) 8,250 8,250 - Use appropriate fringe rate for each job class
See website at: www.umn.edu/ohr/payroll + Fringe
Academic 4,832 9,664 2,455 33.9% * salary from above (FY11 Rates)Non-Academic 1,280 1,280 1,280 26.4% * salary from aboveGrad Assistant (total time) 1,386 1,386 - 16.8% * salary from above
+ Supplies (estimated) 2,500 - -
+ Equipment Use Costs (estimated) 4,000 - - Depreciation, maintenance, etcallocated based on total usage
+ Allocation of General Costs 6,604 9,574 (16,178) Applicable to all Services
= Total Service Costs 41,349 53,934
/ Number of Units (hours, tests, etc) 5,000 12,000
Total cost per unit 8.27 4.49
What are the available hours for these individuals ('billable hours,' exclusive of vacation and sick days, training time, and other non-related hours). SEE "BILLABLE HOURS" TAB FOR ASSISTANCE.
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Questions?
Office of Internal Sales websitehttp://finsys.umn.edu/sales/iso.html
This presentation is posted on the site.