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Managing Sponsored Project Funds: Computing Indirect Cost Changes

Find out how to recalculate indirect costs when rebudgeting sponsored project funds.

Indirect costs (IDC) may need to be recalculated if funding for a sponsored project award is rebudgeted. This occurs because some expenses are subject to IDC, and others are excluded.

These sample situations show when and how IDC should be recalculated:

Example 1: IDC increase

When you rebudget from an expense account that is not subject to IDC (such as equipment) into an account that is subject to IDC (such as salary), you need to calculate the amount to be rebudgeted to IDC. The calculation below assumes these details:

  • The IDC rate is 52%.
  • The amount required is $2,000.
  • You are transferring from equipment and to salaries.
  1. Calculate the amount of IDC that will be added.
    • In this example, $2,000 x .52 = $1,040 in IDC.
  2. In your budget journal, include a:
    • Debit of $3,040 to equipment
    • Credit of $2,000 to salaries
    • Credit of $1,040 to IDC
  3. Check your math:
    • $3,040 divided by 1.52 = $2,000
    • $2,000 + $1,040 = $3,040

Example 2: IDC decrease

When you rebudget from an expense account that is subject to IDC (such as supplies) into an account that is not subject to IDC (such as equipment), there will be corresponding savings in IDC. The calculation below assumes these details:

  • The overhead rate is 52%.
  • The amount required is $3,000.
  • You are transferring from supplies to equipment.
  1. Calculate the amount of IDC that will be saved.
    • In this example, $3,000 / 1.52 = $1,974 in IDC.
  2. In your budget journal, include a:
    • Debit of $1,974 to supplies
    • Debit of $1,026 to IDC
    • Credit of $3,000 to equipment
  3. Check your math:
    • $1,974 x .52 = $1,026
    • $1,974 + $1,026 = $3,000