Definition of Costs

A cost allocation plan is a means of distributing expenses which benefit more than one program to various projects. Cost allocation is basically a mathematical exercise to distribute costs proportionally based on the benefit received. 

An agency will incur basically three kinds of costs: direct, administrative, and allocable direct.

1. Direct costs are those costs that benefit a specific project and include expenses such as:
   • Salaries/benefits of persons who provide direct services to only one project
   • Travel costs, which benefit a program,
   • Equipment and maintenance and insurance for the equipment used only for one project 
   • Project supplies for a specific project
   • Professional services which benefits a single project 
   • Printing which benefits a single project
2. Administrative costs are costs that benefit the operations of the entire agency, but cannot be identified to specific projects and include:
   • Executive director's salary and benefits, or administrative portion thereof if the executive director spends time on grant-related activities
   • Fiscal officer's salary and benefits, or administrative portion thereof if the fiscal officer spends time on grant-related activities
   • Purchasing staff's salary and benefits
   • Secretarial support of administrative employees
   • General office supplies
   • Travel of administrative employees
   • Occupancy costs (e.g., rent and utilities) of administrative employees,
   • Postage and telephone costs of administrative employees
   • Liability insurance
3. Allocable direct costs are costs which benefit more than one project and are not administrative costs. These expenses include:
   • Salaries and benefits of employees whose work benefits more than one project
   • Travel costs of employees whose work benefits more than one project
   • Occupancy costs of projects
   • Communication costs of projects
   • Supplies used by more than one project
   • Contract for professional services that benefit more than one project
   • Rental and maintenance for equipment used by more than one program
   • Audit costs