Cost Allocation

means the process of assigning to two or more programs the costs of an item shared by the programs. The goal is to ensure that each program bears its fair share, and only its fair share, of the total cost of the item. For purposes of cost allocation in traffic safety subgrantee agencies, cost allocation refers to the allocation of costs to various sources of funding, not to accounting categories.

Cost Allocation Plan

means a written account of the methods used by the grantee agency to allocate costs to its various funding sources.

Costs incurred for a common or joint purpose benefiting more than one cost objective could be classified as an indirect cost if a subgrantee has an approved indirect cost rate. If no indirect cost rate exists, then a cost allocation plan can be used to allocate costs to its various funding sources.

NHTSA’s Highway Safety Grant Funding Guidance, Part II, E., “Proportionate Funding,” states:

“For all activities and equipment to be funded which have components both related and unrelated to a highway safety grant, the federal share is based proportionately on the projected utilization for the federal (NHTSA) grant purposes.”

This requirement to share (allocate) the costs of shared resources can be met by using logical and rational methods to ensure that each program is paying only its fair share of the cost of an item used in common, and that no program is subsidizing another. Generally, the methods used to allocate a shared cost should be the simplest, most straightforward way of allocating this type of cost fairly. Complex, highly detailed methods should be avoided when a simple one will achieve the objective.

The nature and use of each cost item determines the most suitable measure for that item and the best scheme for the allocation of costs. Taking an approach such as "Highway Safety has the largest budget, so Highway Safety should pay the largest share of costs" is not acceptable. The Highway Safety Program's share of an agency budget is determined by the allowable and reasonable cost of providing highway safety services as reflected in the cost allocation plan, not by the quantity of highway safety dollars going into the agency's total budget.

Methods, rules or formulas that use percentages or fractions of cost items are acceptable. For example, a method of allocating staff costs could be as simple as a statement of the percentage of time attributable to a funding source. If an individual spends half of the day on Traffic Safety activities, another 25 percent on activities supported by funding source A and 25 percent on activities supported by funding source B, then the cost allocation rule is 50 percent to Traffic Safety, 25 percent to funding source A and 25 percent to funding source B. These percentages may then be applied to all relevant personnel costs for that individual (or group of individuals) for a budget period. Minute-by-minute, hour-by-hour allocation is not required, but there must be a way to reasonably establish the basis for the allocation rule, such as agency or classroom schedules or prior year reports.

EXAMPLES:

Allocation based on usage.

The cost of office supplies allocated based on the quantity used on each project:

Allocation based on number of hours

. The cost of computer software allocated based on the number of hours logged for each project:

Allocation based on percentage effort.

The cost of office supplies proportionately allocated based on the percentage of effort charged to each project:

To carry out the requirement of appropriation law, a cost allocation plan should: