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Cost Accounting Assignment 2

The document provides an example of how to calculate indirect costs as a percentage of total direct costs for a sponsored project award. It gives a sample award with $100,000 total, $20,000 budgeted for equipment, and a 15% indirect cost rate excluding equipment. It then shows the step-by-step calculation and allocation of the direct and indirect costs to ensure they total the full award amount.

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Haris Khan
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45 views

Cost Accounting Assignment 2

The document provides an example of how to calculate indirect costs as a percentage of total direct costs for a sponsored project award. It gives a sample award with $100,000 total, $20,000 budgeted for equipment, and a 15% indirect cost rate excluding equipment. It then shows the step-by-step calculation and allocation of the direct and indirect costs to ensure they total the full award amount.

Uploaded by

Haris Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Cost Accounting Assignment

Q. How to calculate indirect cost explain with example


To calculate costs when an award specifies indirect costs as a percentage of total direct
costs, use the following example.
Example: Consider a sponsored project award with these instructions:

 The total award is $100,000


 Equipment is budgeted at $20,000
 The indirect cost rate is 15%, excluding equipment

1. Calculate the amount subject to indirect costs (IDC):

Total award $100,000

Minus exclusions
-$20,000
(equipment)

Modified total costs $80,000

2. Divide the modified total costs by 1.X% (where X=IDC percentage). The result is the
dollar amount of direct costs.
o In this example, $80,000 divided by 1.15 equals $69,565 in direct costs.
3. Subtract direct costs from the modified total costs amount. The result is the dollar
amount of indirect costs.
o In this example, $80,000 minus $69,565 equals $10,435 in indirect costs.
4. Allocate amounts and check your math. All allocations should add up to the total
award amount.
o In this example, the three allocations add up to $100,000:
 $20,000 to the equipment account
 $69,565 to the remaining expenditure accounts (direct cost)
 $10,435 to the indirect cost account

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