Multifamily Housing Program Financial Management Toolkit

9. Basics of Cost Allocation

Cost principles are those common principles that help organizations determine the costs for specific activities and the costs that are chargeable to grants, awards and other agreements. Although the cost principles for the federal government, local governments and for nonprofit organizations are similar, they are not identical. Recipients and sub-recipients should ensure they are using the appropriate Office of Management and Budget (OMB) guidance and are in compliance with all applicable state and local requirements.

As part of its management function, the OMB has established cost principles for federal grant programs, detailed in 2 CFR §200.400 (Subpart E–Cost Principles). The information that follows describes how costs are classified, what is required to receive reimbursement and how both direct and indirect costs are allocated. OMB identifies three specific attributes related to costs:

  • Allowability
  • Reasonableness
  • Allocability

In this Section

9a. Allowable Costs (§200.403)

Knowledge Check - Allowable Costs

9b. Reasonable Costs (§200.404)

Knowledge Check – Reasonable Costs

9c. Allocable Costs (2 CFR §200.405)

Knowledge Check – Allocable Costs

9d. The RADAR Test

Knowledge Check – RADAR Test