Identifying Costs

Operating Expenses

(Salaries, supplies and other direct expenses) personnel-related expenses, such as salaries and wages, are included for those individuals directly providing the service (e.g., equipment operators), or those individuals who are involved in administering the service (e.g., service center managers). As with other service center costs, the expense must be allocable to each individual service line or product, and not aggregated across a group of services or products. For those individuals involved in the administration of the service or multiple services, the costs can be determined through methods such as reasonable and documented estimates of effort associated with administering each service line.

Likewise, materials and supplies must be directly identified with each service line or product, or easily allocated based on a reasonable, documentable method.

University of Illinois Chicago Only: Any purchase(s) that result in a Banner fund balance deficit greater than $10,000 requires prior approval from the Associate Chancellor for Budget and Financial Administration or their delegate. In the absence of prior approval, units with Banner deficit fund balances greater than $10,000 may be required to complete formal deficit reduction plan.

Equipment Depreciation Expenses

General Federal regulations prohibit the inclusion of capital equipment purchase expense in recharge rates. The full cost of capital equipment purchases may not be included in service rate calculations. Instead, capitalized equipment purchased with non-federal funds may be recovered by including a depreciation component in the internal billing rate. In addition, equipment depreciation expense may be included as a cost in the rate calculation. In order to be consistent with university accounting records, equipment depreciation expense used in service center rate calculations must be based upon amounts in the Banner Fixed Asset system. This reflects the cost of the equipment allocated over its estimated useful life. Depreciation included in the internal billing rates may not be included in the F&A rate calculation.

Service activity equipment is non-expendable, non-consumable, tangible property with an estimated useful life of more than one year and a cost of $5,000 or more, purchased through the funding sources listed below. Equipment and upgrades with an acquisition cost of less than $5,000 is expensed in the year of acquisition.

Equipment also includes additions, improvements, or modifications to existing equipment which increase the productivity or useful life of such equipment and cost $5,000 or more. Replacement parts which do not extend the useful life of the equipment and upgrades that cost less than $5,000 are defined as operational expenses, and are not capitalized. The equipment must benefit multiple users. Otherwise, it is to be funded by the individual user, and not included in a recharge rate calculation. If a piece of equipment is used by more than one service facility, its acquisition cost and related depreciation is allocated to the various service facilities based upon usage.

Funding Service Center Equipment Acquisitions

The following sources of funds may be used for acquisition of service activity equipment when an entity code has been assigned to the asset:

*NOTE: Plant fund type 8C may include federal funds and may not be used for equipment acquisitions.

University of Illinois at Chicago Only: Equipment purchase(s) that result in a Banner fund balance deficit greater than $10,000 are required to obtain prior approval from the Associate Chancellor for Budget and Financial Administration or their delegate. Prior approval is still required even if the adjusted fund balance calculation is positive. In the absence of this prior approval, units with Banner deficit fund balances greater than $10,000 may be required to complete formal deficit reduction plan.

A list of Fund Types and descriptions is available Fund Type Descriptions.

Capital Lease Equipment Acquisitions

Units may acquire equipment through a capital lease arrangement if processed in accordance with 7.2 Purchase of Goods and Services. For the interest on the capital lease contract to be a component of the rate, both the following conditions must be met:

• The cost of equipment (lease payments less imputed interest) is $10,000 or more
• In the event the capital lease involves Federal funds, prior written approval is obtained from the Federal Government through; OVCR - Grants and Contracts (UIC), Office of Research and Sponsored Programs-Post Award (UIS), or Sponsored Programs Administration Post-Award (UIUC).

Equipment and the Banner Fixed Asset System

The System’s Banner Fixed Asset system maintains both asset detail and depreciation for capitalized equipment.

The asset cost is the acquisition price plus net book value of traded-in equipment for purchased equipment. Interest paid in connection with equipment acquisition is charged to an interest expense account code, and is not included in the asset value of equipment. For donated equipment, cost is defined as the fair market value when received. For additional information concerning the determination of asset cost, see 12 Property Accounting.

All service activity equipment included in recharge rates, regardless of funding source, must be identified by recording the "entity code" in the Banner Fixed Asset system. Failure to assign this code may result in improperly including the depreciation expense in the university's F&A Rate calculations. Each unit is responsible for contacting the University Property Accounting and Reporting office when entity codes need updating in the Fixed Asset system. See 12 Property Accounting for additional information.

The condition codes for service activity equipment are recorded in the Banner Fixed Asset system and updated as necessary by each unit. Depreciation expense must be supported by Banner Fixed Asset records with condition codes which document that the equipment is usable, in use, and needed.

Equipment Depreciation

Equipment depreciation is maintained in the Banner Fixed Asset system. Depreciation is calculated in fixed assets only once a year during the year-end close process.

Fund Type 3E: Service centers may include equipment depreciation for equipment purchased with Fund Type 3E funds in their recharge rate calculations. Equipment purchased with 3E funds are automatically assigned an entity code by the University Property Accounting and Reporting office.

Non-Fund Type 3E: Depreciation expense for equipment purchased with funds other than Fund Type 3E can also be part of the operating costs of a facility and included in recharge rates if "the equipment is used in support of the service activity," and "an entity code has been assigned to the asset."

Entity Code: Units are required to review and report entity codes in the Banner Fixed Asset records associated with all equipment used in self-supporting activities, regardless of the source of funds used to purchase the item to University Property Accounting & Reporting (UPAR). If the service center wants to include non-fund type 3E assets in their service activities re-charge rate, they must first contact UPAR. This can be done by completing the "Entity Code Change Request Form" and submitting it to UPAR. To obtain this form see 12 Property Accounting.

If service centers want to include depreciation in their recharge rate for an "established" asset that does not already have an entity code assigned to it, they are required to complete the "Entity Code Change Request Form" located in 12 Property Accounting. The form must then be sent to University Property Accounting and Reporting and System Government Costing. This is critical because depreciation expense is included in the F&A Rate Calculations. The F&A Rate is generally a set rate established for a four year period. In order to ensure the System is not double charging the federal government, service centers must coordinate the inclusion of this depreciation expense in their recharge rates with System Government Costing.

Commodity Code/Useful Life: The assignment of a commodity code to an asset by University Property Accounting and Reporting classifies the asset into various categories (e.g., trucks, incinerators, computers, etc.) and determines the useful life for depreciation purposes. Service centers are required to use the same depreciation calculations based on the assigned useful lives.

For assistance in obtaining depreciation information from the Banner Fixed Asset system, units may contact System Government Costing. System Government Costing has made available a Business Objects Web Intelligence report for use in compiling depreciation information for rate calculations. The Equipment Depreciation Business Objects Web Intelligence (Webi) Report compiles fixed asset details of moveable equipment or software by "responsible organization" code.

Disposition or Transfers of Equipment

Net asset value, if any, at time of disposal is considered depreciation in the year of disposition unless it is a trade-in. The net book value of a traded asset is reflected in the new asset.

Any transfer of equipment involving service activities must be reported to University Property Accounting and Reporting to assure that appropriate Banner updates are made.

Plant Fund Reserve Establishment

Units that elect to establish a plant fund reserve (Type 8N with a level three hierarchy of 7650 or 7651) for service activity equipment replacement must submit a request to UAFR to create a plant fund, see 13.1 Overview of University Fund Accounting. This request will be reviewed by the Director of University Accounting Services (UAS), who acts as the delegate of the Controller, and the unit will be notified of the decision. Units may create plant funds to establish reserves for future equipment acquisitions and replacements. The funds retain their identity as associated with the storeroom and service fund that originated the funding for the reserve. No storeroom or service operating activity may be charged to these funds.

Purchases of Goods for Resale

General

Service centers (e.g., storerooms) that sell products to users are responsible for determining an accurate Purchases of Goods for Resale amount, which includes not only the accurate cost of the product itself, but any associated inventory costs such as freight and inventory adjustments.

Inventory Management

Storeroom managers must maintain perpetual inventory records of each item of merchandise for resale, in order to compute the value of the inventory. Efficient management of the inventory of merchandise for resale to maximize resources is the unit's responsibility. When deciding upon the appropriate level of inventory, the following and/or other items appropriate to the operation should be considered:

• Cost of storage
• Cost of shortages (including operational shutdowns because of lack of inventory, additional shipping expense resulting from expediting orders)
• Lead time (time between order and receipt of item)
• Obsolescence or shelf life
• Opportunity cost of capital (investment income which could be realized if cost of inventory were invested)
• Quantity discounts available

State purchasing regulations require that no more than one year's inventory be on hand, except for lifesaving medications, mechanical spare parts, and items for which the supplier stipulates a minimum order.

The service center manager is responsible for ensuring that physical inventory is properly performed, and inventory records are adequately maintained and adjusted. More detailed requirements are outlined in 5 Receivables. Inventory of merchandise for resale should be costed in accordance with acceptable accounting practices consistently followed by the service center. The unit may not change inventory valuation procedures from one year to the next without approval from University Accounting and Financial Reporting. Moving average or "First In First Out" (FIFO) is recommended for valuing inventory of merchandise for resale. See 5 Receivables for an explanation of moving average inventory valuation calculations.

Inventory Accounting

Activities that purchase merchandise for resale generally record purchases as a debit to purchase of goods for resale (OL account code 187100). Periodically these purchases should be debited to Inventory for Resale (GL account code 55000) and credited to Purchase of Goods for Resale (OL account code 187100).

These adjustments should be made at least annually, preferably monthly for high volume activities. The entries may be made manually, by an automated billing system (if one exists), by the Banner Allocation and Assessments (ALAS) application, or by a combination of these methods. Service activities should consult with University Accounting and Financial Reporting to determine which method is best for their activity.

Facilities Costs

Depreciation of buildings is not generally allowed except under rare circumstances when the facility funding is from fund type 3E operations. Any inclusion of facility depreciation in rate calculations must be approved by System Government Costing.

Unallowable Costs

Units are prohibited from charging the following costs to their self-supporting funds: (1) unallowable under University policy and state law; (2) unallowable by 2 CFR 200.420-.475 such as entertainment, bad debt, alcohol, and public relations (3) do not benefit any of the products/services of the service activity or the purpose of the individual fund they are in; or (4) costs included in the University F&A Rate Calculation, and are, therefore, not allowed in the development service activity recharge rates.

Costs not allocable to service activities, such as the State paid salaries of administrative staff (e.g., department business office) and Operations and Maintenance Division expenses paid by the System, may not be recovered as a component of the user fee or markup charged to internal users because these costs are recovered as a component of the University's F&A rate.