Procedure 5.03.01

Part 1. Purpose

The purpose of this policy is to provide accurate cost information to the College. Cost information serves many purposes, both internal and external, including the accurate pricing of goods or services and assisting in the allocation of resources across the College.

Part 2. Definitions

Cost Allocation: An expenditure transfer between two internal​ departments or Cost Centers for goods or services provided by one department (Cost Center) to another.

Direct Costs: Costs that can be specifically identified and assigned with relative ease and with a high degree of accuracy to a department. These costs are practical to track actual usage by department. Examples include labor and fringe benefits, telephone-related charges traced to a specific telephone account, copying costs where the number of copies is identified by Cost Center and postage costs where these costs are accumulated by Cost Center.

Indirect Costs: Often referred to as overhead, these are costs incurred by multiple departments where specific utilization is difficult to track. These costs are not accumulated in units easily traceable to individual activities and, therefore, must be allocated using a rational and consistent method that approximates the activities' proportional benefit derived. Typical costs in this category are facility costs such as utilities, maintenance, and other related costs; costs of administrative activities such as human resources and fiscal services and; costs of executive staff such as presidents and vice presidents.
 
Continuing Education and Workforce Development (CEWD): A department within the College that provides instruction and related services designed and delivered to meet the needs of private and public sector companies/organizations. Such instruction includes closed enrollment, credit or non-credit, provided under a contract with market pricing.

Part 3. Process Steps

Subpart A. Allocating Costs: 

All direct costs paid centrally must be evaluated to determine if they should be allocated and charged back to the related programs or Cost Centers.

Certain costs must be charged directly or allocated back to specified programs. Where any of these costs are immaterial or where the effort to allocate as direct cost is prohibitive, the costs may be allocated in the same way as an indirect cost.

Subpart B. Indirect Cost Methods

The method used to determine an indirect cost rate to apply to activities and functions must be:

• Reasonable
• Based on documented procedures
• Based on reliable financial and other information

Indirect costs may be applied as a single rate or in multiple rates based on the cost factors involved. Examples include:

• Costs per square foot for facilities support including utilities, maintenance, and depreciation (where applicable)
• Costs for human resources and payroll functions may be based on the number of Full-Time Equivalent (FTE) employees, the number of staff hired during the year, or some other reasonable basis.
• Costs for the business office function may be based on non-personnel costs incurred.

In each of these examples, the rates should be based on the prior year's actual data or an estimate for the current year. The rate applied normally would not change during the year unless a material event occurred to require a change.

Subpart C. Continuing Education and Workforce Development (CEWD)

CEWD activity must be recorded in MinnState Fund 120, a subaccount within the College's general fund.

Owner(s) Title: Vice President of Finance and Operations

Date of Adoption: 2/22/2006

Date of Implementation (if different from adoption date): Changes approved on 7/22/2021 will be implemented with the approval of the full revisions of the College’s finance policies section in May 2025.

Date Last Reviewed: 5/1/2025 (Limited)

History and Subject of Revisions: 5/1/2025 (Limited Review), 7/22/2021 (Comprehensive Review. Substantial changes aligned with a review of all finance policies. Procedure renumbered from 5.06.02 to 5.03.01 due to the repeal of 5.06.), 1/2/2019 (non-substantive changes), 2/22/2006 (Adopted)

Regulatory Authority (e.g. Minnesota State policy, federal or state law):