# Calculating Billing Rates

A. The general Service units billing rate(s) calculation would involve the following variables:

Projected operating costs +/- carryforward of prior year under/over recovery

Expected units of activity

The calculated rate is then applied to the actual level of this activity when charging users.

B. Some service units may need to establish separate rates for the various service lines or operations, within the unit. Having separate service line rates would provide more accurate charges to all users than one blended rate based on all of a service unit’s costs. For service units using separate service line rates, the billing rate of each cost unit, or operation, must be documented.

C. A service unit providing more than one service may sometimes make an over recovery on some services and an under recovery on others. Combining the results of various services is acceptable as long as the mix of users of each service is not different. Higher prices may not be charged for one service line in order to subsidize losses on another service line center. The total of revenues, recharges, expenses and carry forward from the prior year for all service lines included in the service unit will be used when calculating the over or under recoveries.

D. The unit of activity is the projected number of service units which result in a reasonable allocation of costs to the various users. This is the ‘Base’ or denominator in the billing rate calculation. Selection of an appropriate unit of activity is essential to ensure that users pay only their share of the costs for the services rendered. Two methods are most commonly used to determine the unit of activity: consumption and output. Both methods distribute costs based on a unit of measurement (e.g. labor hours, machine hours, pounds, gallons, CPU time, etc.).

• A consumption base is used when expenses are directly proportional to how much a unit has consumed. For example, assume that labor and equipment usage costs can be accurately identified as being consumed on an hourly basis. This means that, for each hour of service, a proportional increase in labor and equipment usage occurs. In this case, the service unit would base the rates on the number of hours of service provided.
• Another basis of allocation may be a measure of the output of the service unit. An output-based rate is calculated when the total cost of the service unit is divided by the total anticipated number of units produced per year (e.g. pages printed, samples analyzed, etc.).

E. Projected Operating Costs: Annual expenses are projected in the same way as other departmental expenditure project—salaries and wages, benefits, travel, printing, telephone, current expense, and minor equipment costs. Any allowable indirect costs (i.e, capital equipment depreciation expense) included in the billing rate must be charged (DR) to the service unit operating project and credited to the service unit equipment project. Projections may include changes in operating expenses, changes in depreciation, or other known fluctuations.

F. Projected Recharges and Revenues: Like other university projects, recharges and revenues for service units are projected for the service unit project. Service units must attempt to match the amount of recharges and revenues with the projected level of expenses through the development of billing rates. When estimating sales or usage levels, considerations may include prior year performance as well as known future needs of internal and external users and other environmental effects.

G. Service Units can choose one of two methods to subsidize service operations. It is important to remember that subsidies cannot be charged to sponsored projects nor can a service unit deficit or surplus be transferred to another service unit project.

• Use institutional unrestricted funds (e.g. State, DRIF, or Revolving) to fund a portion of the service unit’s operating expenses – the service unit’s operating project is not charged for all costs. The subsidies cannot be recovered in the internal user fee if this method is used.
• The service unit incurs all operating expenses on the service unit operating project to calculate a service rate – the customer is charged a portion of the rate and the remainder (subsidy) must be charged to institutional unrestricted funds (e.g. State, DRIF, or Revolving).

In both of these instances the subsidies need to be identified in PS by using Account 4833716 – Subsidy – Service Units on both the debit (to the subsidizing chartstring) and credit (to the service unit operating project chartstring) sides of the subsidy entry. This is necessary to allow for proper treatment of service unit subsidies in UMBC’s F&A Cost Recovery Rate Calculation.