Cost and Service Centers Policy
Cost and Service Centers Policy
Purpose
The purpose of this Cost and Service Centers Policy is to provide guidelines on the establishment and operation of Cost Centers in order to adhere to federal and state costing standards, as well as University policies and procedures.
Scope
This policy is applicable to its college, schools, departments, and Research Institute for establishing and operating cost centers. Cost Centers include ‘recharge centers’ and the ‘specialized service facilities’ defined in Section 200.468 of the Office of Management and Budget’s (OMB) Guidance for Federal Financial Assistance, Cost Principles, and Audit Requirements for Federal Awards and outlined in the University of Dayton’s Cost Accounting Standards (CAS) Board Disclosure Statement DS-2 Item 3.2.0 (2022). Cost Centers are established by the University of Dayton Research Institute (UDRI) Business Operations Department.
Policy History
Effective Date: February 18, 2025
Approval: February 18, 2025
Policy History:
- Approved in original form: February 18, 2025
Maintenance of Policy: Associate Vice President for UDRI, Business Operations Department; University of Dayton Research Institute
Policy
Cost Centers, also known as Service Centers, are departments or functional units which perform specific, technical, or administrative services primarily for the benefit of other units within a reporting unit.
Cost Centers are established to facilitate the collection of fees for the maintenance, repair, and operation of equipment and capabilities utilized in sponsored research and internal projects. Cost Centers are utilized when these resources support multiple concurrent projects and expenses cannot be directly allocated to a specific project.
Examples of Cost Centers include support of:
- Test equipment serving multiple government and/or industrial customers.
- A laboratory capability serving multiple government and/or industrial customers.
Considerations
The following should be considered prior to proposing a Cost Center.
If one or more of the following guidelines apply to the expense, a Cost Center is NOT appropriate:
1. If the equipment or service operating expenses can be allocated to one specific contract or award.
2. Government Furnished Equipment.
3. Donated equipment.
4. Assets and/or capabilities without similar maintenance and operating costs disallowing use of one rate.
If the below guidelines apply, a Cost Center may be appropriate:
1. If the equipment, service, or capability has multiple customers from industrial, government, and/or internal sectors.
2. Assets or capabilities with similar maintenance and operating cost where usage of the asset or capability is determinable, and one rate can be factored.
3. Substantial business is expected over 12 months.
4. Costs exceeding $25,000 annually. Exceptions to this require UDRI Vice President approval. Requests under $20,000 will not be considered.
Should a Cost Center proposal be deemed appropriate, the following requirements will apply:
1. Expenses must be charged using a traceable and repeatable unit of measure. If costs and total usage are unknown, further research is required before considering establishment.
2. A strategic plan outlining the defined endpoint, basis of usage, and spending strategy for maintaining the equipment, service, or capability must be submitted and reviewed periodically.
3. User rates must be charged uniformly to all internal and external customers.
4. Break-even operation: Over time, the Cost Center should fully recover not over recover (or “break even”) the total cost of providing the good and/or service.
5. Cost Centers will be reviewed periodically. A subsidy may be required from the owning organization to clear deficits not eradicated within a reasonable period.
6. Capital equipment is defined by the University’s CAS disclosure statement.
7. Depreciation includes only the annual depreciation amount, excluding acquisition costs. Computation of depreciation must be based on the acquisition cost of the capital assets and must be calculated in the same manner as set by the University's CAS disclosure statement.
a. If equipment is purchased with federal funds or used for cost sharing on federal awards, depreciation associated with the equipment cannot be included in a Cost Center’s rates.
b. If equipment is included in the University’s Facilities & Administrative indirect cost proposal, a Cost Center may not recover depreciation in its rates.
c. Cost Center rates cannot include unrecovered depreciation from prior years.
d. Cost Center rates cannot include estimated depreciation from future anticipated or planned replacement equipment.
Operations of a Cost Center
Establishment of a Cost Center
Cost Centers must have a separate financial project identifier to charge expenses and obtain reimbursement for services. A proposal must be submitted to UDRI Business Operations for approval to create a new project and establish new rates. Information submitted in proposals is reviewed for consistency with compliance standards.
Responsibilities of a Cost Center Manager
1. Manage the capacity, budget, forecasts, and operating schedule.
2. Provide monthly usage log information and archive detailed records.
3. Approve the Cost Center purchases for consistency with compliance standards.
4. Review labor reports to verify accuracy of charges to the Cost Center.
5. Review financial information for accuracy.
6. Assist Business Operations team with rate review at least once every 2 years.
On-going Rate review and updates
1. Rates will be reviewed at least once every two years, and recommended changes, based on historical costs and projected future costs, will be sent to Cost Center Managers.
2. Any carry-forward balances will be considered in revised rates.
3. Review of capital asset deprecation will be included in Cost Center rates.
4. If rates are not approved, a stop work will be issued, and no Cost Center activity will be allowed until the issue is resolved and an approved rate is established.
Cost Center Rate Development
Development Method
Cost Centers must follow sound cost accounting practices and standards, including rate setting methodology and billing practices, i.e., Generally Accepted Accounting Principles.
On an overall basis, the Cost Center billing rates need to be set at a level that results in the Cost Center breaking even over a reasonable time. The break-even Cost Center rate is determined by relating total estimated annual direct costs and total estimated annual usage (or output).
Cost Center costs are those that can be specifically attributed to the operations of the Cost Center and cannot be assigned to a single project but can be allocated to the Cost Center with a high degree of accuracy.
Expenses to be included in a Cost Center rate calculation may encompass:
1. Salaries & benefits for staff managing, supporting, or working for the Cost Center that cannot be direct charged to one project.
2. Material & supplies costs necessary to maintain the equipment, capabilities, or services but not directly allocable to one project.
3. Allowable depreciation expense for capital equipment as defined above.
4. Other allowable supporting costs.
Expenses EXCLUDED from the Cost Center rate include:
1. Costs included in the Facilities & Administrative Indirect Rate(s).
2. Costs of assets donated, cost-shared, or allocated to a project of a different cost objective.
3. Unallowable costs as defined by OMB Guidance for Federal Financial Assistance.
4. Fee or profit.
Basis of Direct Charges
The cost of the service and/or product will be charged directly to customers based on:
1. A schedule of billing rates that does not arbitrarily discriminate between the University’s external or internal customers (including internal use by the institution).
2. Consistent, accurate, and timely billing of all customers, accompanied by an approved schedule of current billing rates, which can be made available upon request.
3. Actual consumption or use of the service and/or product multiplied by the billing unit.
4. Actual costs less applicable credits. Actual cost may include Cost Center overhead.
a. Cost Center overhead are costs that cannot be directly attributed to a specific good or service but are essential to the operations of the Cost Center. These costs are typically financed by a Cost Center’s operating account and can be included in the billing rates for each service and/or product. These costs should be allocated in a logical manner, beneficial to the relationship of each service and/or product, e.g., a Cost Center’s administrative costs.