Some sponsors request that indirect costs do not exceed a percentage of total project costs. In these instances, the percentage rate of indirect on total project costs will be lower than the standard method method of calculating percentage of indirect costs on total direct costs. To calculate indirect costs on total project costs, use this formula:
Calculation: Direct costs/(1 –allowed indirect rate) = Total Costs
Total costs - Direct costs = Indirect costs
A sponsor limits Indirect Costs (IC) to 22% of total costs
Assume direct costs (DC) - tuition charge (TC) - equipment costs (E) - dollars over $25K on each subcontract (SubK) = $150,000 (Modified Total Direct Costs - MTDC)
$150,000/ (1-.22) = $150,000/.78 = $192,307 Total costs
$192,307 - $150,000 = $42,307 Indirect costs
Indirect rate = $42,307 IC/$150,000 DC = 28.21% on total direct costs (remember to add TC, equipment costs and dollars over $25K for each subcontract back into total costs after determining indirect costs).
Once the percentage of indirect costs on total direct costs is determined, you can use this rate to apply it as a regular indirect rate on modified total direct costs.
- Figure out Direct Costs (DC), and subtract tuition charge (TC) - equipment costs (E) - dollars over $25K on each subcontract (SubK) = $150,000 (MTDC)
- (DC-TC-E-SubK) x .2821= Indirect costs
- (DC- TC-E-SubK) + Indirect = Subtotal
- Take subtotal and add back in TC, E & SubK = Total costs