Fill in the names of each staff individual participating in the time study next to the numbers in the left column.

From the time study tally sheet, fill in the amount of time that each individual spent on each service type for this location and functional cost center (Item A).

For each individual, fill in the total time during the study period (Item B). This information is derived from the summary tally sheet for the time study in this cost center. Item B will be the same on all worksheets for every individual during the time study period.

Calculate the percentage of time spent on each service type by divid ing Item A by Item B. Place the answer to the calculation under Item C.

In Item D, enter the total salary and fringe cost associated with that individual for the period for which unit costs are to be developed (refer to the top of the worksheet).* If unit costs are being estimated for a future period, this amount should be adjusted to account for inflation, increases in hospitalization benefits, and so on. If actual data are being used, extract information from the subsidiary ledger cards.

Next, compute the direct labor (for each personnel position) associated with each service type. For each column, multiply the percentage in Item C by the total dollar amount in Item D and put the answer in Item E.

When the latter step is completed for all staff providing services for this location and functional cost center, sum all Item E entries (by service type) and enter the results in Item F.

Note that the worksheet is self balancing. For each individual (Items A through E) the sum of the dollar amount for all services in Items E (far right Column) should equal the total salary and fringe benefit for that individual entered in Item D. Similarly, the sum for Items E for all individuals providing services in this location and functional cost center should equal the total in Item F.

In Step 10 this direct labor cost per service type is added to the other two cost components (other direct costs and indirect costs) to arrive at the total cost per type of service. Only then can the total cost per service type be divided by the number of service units to arrive at the cost per unit of activity.

In most instances, AAA will develop units costs for the year; therefore, the staff's total annual salary and associated fringe benefits will be used.

8.

DEVELOP THE OTHER DIRECT COSTS PER SERVICE TYPE

Other direct costs include all costs other than direct labor that are directly attributable to a specific service type within a location and functional cost center. Examples of other direct costs include:

The cost of food may be directly attributable to the specific service type of meals for a Title III-C-2 provider.

The cost of a vehicle also may be directly attributable to the specific service type for transporting food for a Title III-C-1 provider.

The decision as to whether a cost is direct or indirect often is not easy to make. It should be based on extensive knowledge of the program, the cost variables involved, and the policies of grantors ratio. A cost may be classified as indirect in one AAA and as direct in another, depending on the titles, locations, functional cost centers, and services associated with each AAA.

The procedure for identifying other direct costs is to review the subsidiary expense ledger or the cost center budgets and identify items that are directly attributable to a specific activity. List each direct cost item and its cost, noting the service to which it applies. The WORKSHEET FOR COMPUTING THE OTHER DIRECT COSTS PER SERVICE TYPE (Exhibit XIV-7) is suitable for this purpose.

Complete the identifying information at the top of the worksheet.

Across the third row, write in the individual service types (see Appendix A) that fall within this location and functional cost center.

Enter the cost items in the column marked "cost category" and the corresponding expenses (or planned expenses) under the appropriate service activity.

Foot and crossfoot the figures in this worksheet.

9. DEVELOP THE INDIRECT COSTS PER SERVICE TYPE

Indirect costs are costs that are not directly attributable to the provision of a specific service type. In other words, indirect costs are all costs left over after all direct labor and other direct costs have been identified. Examples of such costs are salaries in administrative cost centers and managers salaries in serviceproviding cost centers, rent, and utilities. Since indirect costs are incurred to support services, it follows that services could not be provided without them. Consequently, each service must share responsibility for indirect costs—that is, each must absorb some indirect costs.

WORKSHEET FOR COMPUTING THE OTHER DIRECT COSTS PER SERVICE TYPE

There are the following five levels of indirect costs:

Total General And Administrative (G&A) Costs-These costs are associated with operating the entire AAA and are not directly attributable to a program title or lower levels in the management accounts structure. These costs first must be equitably divided among the titles.

Program Management Costs Under A Funding Subtitle-There are two types of indirect costs under program management: (1) those expenses associated with managing the services provided directly by the AAA which are attributable to the specific subtitle, and (2) the equitable portion of the G&A costs allocated to the title and subtitle. Functional Cost Center Administrative Costs-This level consists of three types of indirect costs: (1) those expenses associated with managing the services provided directly by the AAA which are attributable to the specific functional cost center, (2) an equitable portion of the program management cost for the subtitle, and (3) an equitable portion of the G&A costs.

Indirect Costs For Each Location-There are four types of indirect costs at the location level: (1) those expenses associated with managing the services provided directly by the AAA which are attributable to a specific location, (2) an equitable portion of the expenses associated with managing the services provided directly by the AAA which are attributable to the specific functional cost center, (3) an equitable portion of the program management cost for the subtitle, and (4) an equitable portion of the G&A costs.

Indirect Costs For Each Service Type-Finally, the indirect costs associated with each specific service type are an equitable portion of the: (1) expenses associated with managing the services provided directly by the AAA which are attributable to a specific location, (2) expenses associated with managing the services provided directly by the AAA which are attributable to the functional cost center, (3) program management cost for the subtitle, and (4) G&A costs.

This process of allocating indirect costs from the highest organizational level down to the lowest level is commonly referred to as a "step down" cost allocation method. Exhibit XIV-8 illustrates the step down cost allocation method for Title III-B.

There are numerous ways to allocate indirect costs. One allocation basis is not necessarily "better" than another, but whichever is selected should equitably distribute and reflect a logical relationship among all functional cost centers and among various service types. Different types of indirect costs can be (probably should be) allocated on the basis of different variables. For example, (1) rent and utilities may be allocated to functional cost centers and to specific service types on the basis of how many square feet the cost center takes up, relative to all square feet used by other cost centers, (2) the salaries and fringe benefits of