Explanation of Reasonable/Allocable/Allowable Costs

Updated: June 27th, 2016

Monitoring awards ensures that expenditures are allocable, allowable and reasonable to a specific sponsored project in accordance with award budget, sponsor guidelines, and UW-Madison policy

Allocable: A cost is allocable to a project if goods or services involved are chargeable or assignable in accordance with the relative benefits received by the projects. In order to be allocable a cost must be treated consistently in like circumstances. For further information see OMB Circular A-21 or 2 CFR 200, Subpart E.

Allowable: A cost is allowable to a project if:

  • The costs are reasonable;
  • The costs are allocable to the specific project;
  • The costs are treated consistently in like circumstances; and
  • The costs conform to any limitations of the cost principles or the sponsored agreement.

For further information see OMB Circular A-21 or 2 CFR 200, Subpart E.

Reasonable: Would a prudent person pay this amount for this item or "If it were published on the front page of the Wisconsin State Journal, would that be okay with you"? For further information see OMB Circular A-21 or 2 CFR 200, Subpart E.

Expenditures may be direct costs, Facilities and Administrative costs, or unallowable costs.

Direct Costs: Costs that can be specifically and readily identified with a particular project or activity. OMB A-21, 2 CFR 200, Subpart E and the Cost Accounting Standards require costs to be accumulated and reported at the same level proposed in the budget. For example, if "scientific supplies" are listed in the grant proposal, then this expense code must be used to charge these supplies. "General Supplies" would not provide sufficient detail and would place us out of compliance.

Facilities and Administrative (F&A) Costs: Costs that are incurred by the Institution for common or joint objectives and cannot be identified specifically with a particular project or program. These costs also are known as “indirect costs” or “overhead”. When charging costs that are typically "indirect" directly to federal awards, use object codes that clarify allocability/allowability. By way of example, "long distance calls" are usually allowed as a direct cost. "Local calls" are typically not allowable unless the nature of the award is one where an inordinate amount of local calls is required (e.g., a survey grant).