The University of Illinois has numerous service centers that provide goods or services primarily to internal users. These activities are designed to recover only the costs necessary to operate. To achieve this objective, each service center must establish rates that recover its costs over time without generating a profit.
A rate calculation is the process of determining the amount to charge for a good or service. The basic formula is:
Adjusted Operating Costs ÷ Usage Base = Calculated Rate
Although the formula is straightforward, developing an accurate rate requires reliable historical financial data and reasonable projections of future operating costs and service volume.
In the formula, the adjusted operating costs generally include non-personnel expenditures, salaries and wages, equipment depreciation, and prior-year over- or under-recovery. The specific adjustments included in the calculation depend on the circumstances and the nature of the service activity. The usage base represents the quantity of goods or services provided to customers. It is typically tracked by the unit through a shadow system, billing system, or another reliable method of recording service activity.
To ensure transparency and compliance, units should maintain documentation supporting the rate calculations and methodology. Units should also review rates periodically to ensure they reflect current operating conditions and comply with applicable university, federal, and state requirements.
Next month, we'll explore best practices for developing rate calculations.
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