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Business and Financial Policies and Procedures

Establish and Monitor Rates for Goods and Services Sold to Customers

Before You Begin

The State Finance Act (30 ILCS 105/6d) mandates that self-supporting income not necessary for the support, maintenance, or development of that activity must be credited to the University Income Fund. Therefore, to avoid transfers of excess revenues to the Income Fund, units must ensure their self-supporting activities break even over time.

Rates for active Banner self-supporting funds must be structured to provide revenue adequate to cover the costs of providing the goods or services without also generating significant surplus fund balances. Review and adjust rates regularly to mitigate or eliminate surpluses or deficits. Consult Address a Self-Supporting Fund Deficit or Address a Self-Supporting Fund Surplus. Reviewing rates at least annually prevents accumulation of significant surpluses or deficits.

The procedure below describes how to establish rates for self-supporting funds. However, additional requirements exist for self-supporting funds that provide goods or services assigned to Banner Fund Type 3E. For more information, consult Section 22.4, Storerooms and Service Facilities and its supplements.

Begin

To establish and monitor rates for goods and services sold to customers:

  1. Identify total costs. Include only those costs, paid from the self-supporting fund, required to provide the goods or services. During the first year of operation, estimate these costs. In subsequent years, use actual historical costs adjusted to reflect anticipated changes.
Costs that can be applied to all self-supporting funds:
  • Salaries and wages
  • Travel
  • Professional services
  • Supplies
  • Non-capitalized equipment purchases (do not include capitalized equipment purchases)
  • Maintenance and repairs
  • Costs to procure or produce goods for resale
Costs that can be applied to all self-supporting funds, but may have restrictions and exclusions for Banner Fund Type 3E funds (See Section 22.4, Storerooms and Service Facilities) include:
  • Benefits.
  • Annual depreciation on capitalized equipment purchased from the self-supporting fund.
  • Annual depreciation on facilities construction projects that are funded from the self-supporting fund.
  • Rent.
  • Utilities, when charged to the self-supporting fund.
  • Overhead assessments charged by a unit, campus, or University for administrative support.
  • Amounts needed to service debt incurred on facilities associated with the self-supporting activity.
  • Amounts included to generate reserves for future equipment or facility expansion. Consult with UAFR for guidance.
  • Start-up or other one-time costs directly related to the purpose of the activity.
  • A working capital amount equal to two months of average monthly expenditures.
If you are reviewing an existing rate, include the cumulative carryover surplus or deficit fund balance from prior year. Adjust this fund balance by the portion of costs that will be recovered over multiple years, such as capitalized equipment purchases or start-up costs.
For example, if capitalized equipment is purchased in year one and will be depreciated over four years:
Year 1 - The purchase will make the fund balance lower than normal because the full cost of the equipment is not included in the rate. Only a quarter of the cost is recovered the first year through depreciation.
Year 2 - Do not include the actual fund balance from the first year of operations, because it contains the difference between the purchase price and the first year's depreciation. Adjust the fund balance to accumulate funds to cover the original cost of the equipment over time.
Fund Balance from financial statement
-
Undepreciated amount of capitalized equipment (net asset value)
-----------------------------------------------------------------------------------------
= Adjusted Fund Balance used in rate computation
  1. Estimate the volume of goods or services your unit will sell in the coming year. This number is used as the basis in the formula to compute your rate. Examples include measures of sales volume, such as:
  • Amount of time staff spend providing a particular service to a customer.
  • Number of attendees expected at a conference.
  • Number of minutes a particular machine or computer is used.
  • Some combination of time spent and materials required to provide a good or service.
  • Total costs required to acquire or produce the goods or products expected to be sold.
If you sell goods or services at different rates, perform a separate calculation for each rate.
  1. Compute the rate.
  • Services or self-funded events - Divide total costs by the number of basis units you expect to sell during the coming year or particular event.
Total cost in dollars
------------------------------------------- = Rate to charge customers when providing services
Basis in estimated number sold
  • Goods - Determine percentage (mark-up ) to add to the base cost of acquiring or producing each item for resale. Identify all costs incurred by your unit to sell and deliver the goods to customers. Divide that amount by the total cost required to acquire or produce the items to be sold.
Cost to sell and deliver
---------------------------------- = Mark-up rate percentage
Cost to procure/produce
Multiply the mark-up rate percentage times the cost of obtaining a particular good or product. Add the result to the original cost of obtaining the item to determine the selling price of that item. If a variety of rates or mark-ups are used, allocate both the costs and basis volume to each category of sale associated with each rate. If you need additional guidance to develop your unit's rates, contact your campus Governmental Costing Office (Fund Type 3E storerooms or services) or UAFR (other self-supporting funds).
  1. Retain documentation of how you computed your rate for review by internal and external auditors and OBFS.

Related Policies and Procedures

Address a Self-Supporting Fund Deficit
Address a Self-Supporting Fund Surplus
Section 12: Determine Capitalization Thresholds
Section 12: Maintain Entity Codes for Self-Supporting Activities
Section 22.4, Storerooms and Service Facilities
Section 22.4.1, Stores and Services Activities (Chicago campus)
Section 22.4.2, Service Activities (Urbana campus)

Additional Resources

Worksheet to Compute Rates to Charge Customers
Section 12: Importance of Accurate Equipment Coding
Governmental Costing Offices:
    Urbana   
    Chicago   
    Springfield   
Accounting and Financial Reporting
State Finance Act (30 ILCS 105/6d)

Last Updated: May 5, 2017 | Approved: Senior Associate Vice President for Business and Finance | Effective: January 2013

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