Incorporate those costs allocated to the departments or units through the central service cost allocation plan. Classify the activities and their costs as direct or indirect. Eliminate from indirect costs capital expenditures and those stipulated as unallowable by OMB Circular or program legislation. Compute the rate by dividing the total remaining indirect costs by the direct cost base selected for distribution of the indirect costs. The determining factor is if the cost at issue generates overhead or benefits from indirect costs, then it should be reclassified to the base and allocated a fair share of indirect costs.
Additional guidance follows on how to obtain an approved indirect cost rate.
For nonprofit organizations - Commonly asked questions about how to prepare your indirect cost proposal.