4.14.2 Cost Allocation Plan
Effective date: TBD
A cost allocation plan, or CAP, identifies, accumulates, and distributes allowable direct or indirect costs and identifies the allocation methods used for distribution. CAPs must be in writing, supported by formal accounting records, and signed by an authorized official. Additionally, a CAP should include a process for reconciliation and adjustment and be periodically validated and updated.
Acceptable allocation bases should:
- Be related to the types of costs being allocated;
- Provide a fair measure of cost benefit;
- Result in an equitable allocation of costs;
- Represent actual effort of cost;
- Provide a cost-effective use of available and representative data; and
- Be adjusted for variations in funding and services provided.
An allocation base is acceptable if it represents a fair measure of cost benefit, and it results in an equitable, reasonable distribution of the costs of the services provided.
Examples of acceptable allocation bases include number of employees, number of transactions, direct labor hours, and square footage of space occupied. Each base should be considered on its own merits as to the purpose for using it and the degree of equity it will achieve in allocating costs.