Calculating rates for a 3E service can be a significant project for your unit. However, depending on the nature of the service provided, using a percentage markup rate may save time and simplify the calculation process.
For example, if you operate a storeroom that sells inventory to system customers, the expenses on the fund can be categorized as either the cost of the goods sold or the administrative costs of providing those goods for sale. Therefore, a percentage markup rate can be used to recover the additional administrative costs to provide those items for sale. The percentage markup rate added to each item’s cost is calculated using the total administrative operating costs divided by the total cost of goods sold for the most recently completed fiscal year.
Similarly, a service may choose to bill customers by marking up the direct salaries and wage costs of providing a service. For example, a unit providing professional services to customers may charge a staff member’s hourly rate plus a percentage markup for the indirect costs (non-personnel expenses, equipment depreciation, etc.) associated with the staff member providing that service.
The principles for allowable and unallowable costs in a standard rate calculation also apply to markup rate calculations. A summary of those rate development principles and helpful templates for storeroom and salary markup rate calculations can be found on System Government Costing’s Rates page.
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