Iowa State University

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Service Centers are established for the purpose of providing goods and services to individual users and other operating units on a cost-reimbursement basis. ISU has more than 700 service center accounts, ranging from small one-time events to large on-going operations. The Financial Accounting and Reporting (FAR) staff is available to provide guidance in establishing a new account and developing appropriate billing rates that comply with federal cost accounting standards.

Who to Contact for Assistance

Definitions of Service Center Operations

Rate Determination Guidlines for Internal Customers

Rate Determination Steps

Rate Determination Guidlines for External Customers

Establishing a New Account

Periodic Rate Review

FAQs
 
 
 
 

WHO TO CONTACT FOR ASSISTANCE
 

The Financial Accounting and Reporting staff of the Controller's Department is responsible for authorizing and monitoring service center operating accounts. Please contact us for guidance in requesting new accounts, establishing appropriate rate structures, and managing your service center operations.
 
 

SERVICE CENTER OPERATIONS
 

Service Center Operations - An in-house operation that provides goods and services on a break-even basis over the long term. Service center operations may have Internal Sales and/or External Sales.

Internal Sales - Sales of goods or services to other University departments or accounts within the University system. All intramural sales, including those to grant accounts, are considered internal sales.

External Sales - Sales of goods or services to external or non-University customers. Students and employees of the University are considered to be external customers when purchasing goods and services for personal use. All external sales should be processed through the ISU Receivables Office except when payment is collected at the point of sale.
 
 

RATE DETERMINATION GUIDLINES FOR SALES TO INTERNAL CUSTOMERS

  1. Service center operations are expected to operate on a break-even basis.
  2. Authorization must be obtained from the Controller's Department (Financial Accounting and Reporting Office) before engaging in a new service center activity.
  3. Except for equipment depreciation discussed in item 6 below, all costs used in the calculation of the rate should be charged to the service center account. Salary, wages, and benefits used in the calculation of the rate must be charged to the service center account by fiscal year-end.
  4. All internal customers must be charged the same rates.
  5. Rates charged to internal customers must be based on projected costs, except for equipment which must be based on original cost.
  6. In order to build the cost of equipment into the rate, the original cost, not replacement cost, should be used. Rates must not include the cost of equipment beyond its depreciable life. Note that equipment depreciation costs will not appear on your account.
  7. Equipment purchased with federal funds may be used in service center operations in some situations but should not be incorporated into the rate calculation. (This is to avoid the potential of charging federal accounts for using equipment that was originally purchased with federal funds.) If the service center plans to use equipment purchased with federal funds, contact the Financial Accounting and Reporting Office to see if it is allowable.
  8. A subsidy exists when all costs of the operation are not charged to the service center account itself but rather to an account of the host department. An example would be a department providing administrative support for a service center operation. If the service center plans to offer a lower rate to the host department due to these subsidies, contact the Financial Accounting and Reporting Office.
  9. Rates must be reviewed at least annually and adjusted if necessary. See periodic rate review process.

RATE DETERMINATION STEPS

To determine the appropriate billing rates for service center operations, it is necessary to project annual costs and related units of measure.

The following rate determination model outlines the simplest method which aggregates all costs to develop a single rate to be used for all goods and services. Your situation may be more complex. Other options appear after the following outline of this basic model.

Step One: Project annual costs

Basic cost components may include:

1. Labor

    • Salaries and Wages
    • Benefits
2. Equipment 3. Supplies and services
    • Supplies consumed in the process
    • Other costs directly related to the process (shipping, etc.)
4. Other Costs
    • Telephone
    • Information technology (IT) charges
    • Administrative costs (travel, subscriptions, office supplies, etc.)
    • Miscellaneous
Step Two: Determine the unit of measure and project the total units per year

The simplest method is to use the same units of measure for all cost components. Alternatively, you might use different units of measure for different cost components. For example, you could charge labor per hour and supplies per process.

Step Three: Calculate your rate based upon your projected annual costs and total units per year

Rate = Projected Annual Costs/Projected Total Units per Year

Projected Revenue = Rate * Projected Total Units per Year

Other options for more complex situations:

You could also compute different rates for different goods and services. In that case, you would go through the above process for each product.

In addition, the costs of some processes may be comprised of both aggregated costs and costs applicable to a particular customer's job. For example, you may want to aggregate labor, equipment, and other costs, develop a rate using the above model, and then add on the costs of specific chemicals consumed in that job.

Equipment Depreciation


 
  RATE DETERMINATION GUIDLINES FOR SALES TO EXTERNAL CUSTOMERS
  1. Rates charged to external customers may be higher, but never lower, than those charged to internal customers. External rates must be set at least as high as the internal rate PLUS the administrative fee.
  2. External customers may be charged market prices. If market prices are not available, the rate determination steps for internal customers previously outlined may be used with the following modifications:
    • Administrative fee must be added.
    • Equipment depreciation may be based on replacement cost instead of original cost (optional).
    • Other adjustments deemed appropriate for external customers may be included.
  3. Accumulated balances from external sales should be used for equipment replacement or to subsidize internal operations.
  4. Fair Competition Policies
    • External sales activities should (1) be related incidentally to the conduct of the University's primary missions of instruction, research, and public service or (2) exist to provide instructional and laboratory experience for students and incidentally create goods and services that may be sold to students, faculty, staff, and the general public.
    • Sales of goods and services that are readily available from other sources are generally not allowed. Proposed sales activities of that nature will be reviewed for propriety of the activity and compliance with fair competition policies.

PROCEDURES FOR ESTABLISHING AN ACCOUNT

The REQUEST FOR ACCOUNT NUMBER form should be used to request a new service center account.

Page 1 of the REQUEST FOR ACCOUNT NUMBER form requires the following information:

    1. The type of account you are requesting
    2. Proposed title of your account
    3. College or Administrative Unit
    4. Department name
    5. Purpose of the account
    6. Signature authorizations
Note: The REQUEST FOR ACCOUNT NUMBER form should also be used to request any other type of university account except a sponsored program (4XX) account which requires a Supplemental Budget.

Page 2 of the REQUEST FOR ACCOUNT NUMBER form requires the following information:

    1. Explanation of service and/or product to be provided
    2. Identification of your intended customers
    3. Identification of your anticipated costs
    4. Identification of your anticipated unit of measurement and total units of usage
    5. Calculation and documentation of your billing rate(s)
The second page of the REQUEST FOR ACCOUNT NUMBER is required for new service center accounts. Submit the completed forms to Financial Accounting and Reporting, 3607 ASB, for review. Upon approval, you will be notified of your new account number.
 

PERIODIC RATE REVIEW AND ADJUSTMENT

  1. The rate review is simply an evaluation of the accuracy of estimates used in the rate formula.
  2. Rates must be reviewed annually at the end of each fiscal year or operating year.
  3. Compare actual annual costs and actual units per year to your projections in your rate formula. Be sure to add equipment depreciation to actual annual costs.
  4. Make projections for next year's rates by adjusting for anticipated changes in costs or units. Be sure to consider the effects of any timing differences on your revenues and expenses. For example, if you have a major customer with a large outstanding receivable, you may want to factor that into your review.
  5. In addition, review and justify the balance in the account. Generally the balance should represent timing differences and the effects of equipment depreciation. Timing differences include uncollected customer charges and payments due to vendors. If you included equipment depreciation in your rate, the balance should reflect funds available to replace your service center equipment. Balances not explained by these factors should be discussed with the Controller's Department as this may require adjustments to next year's rates.
  6. Retain written documentation to support your annual rate review process.

FREQUENTLY ASKED QUESTIONS

  1. How does the account begin to build funds for equipment replacement and expansion if the rates are to only recover actual expenditures?


    2. Response: While it is correct that depreciation charged to internal customers must be based on actual costs, depreciation charged to external customers may be based on replacement costs. In addition, it is allowable to charge external customers market prices. The resulting accumulated balances may be used for equipment replacement.


  2. How does the department finance start-up costs or acquire new equipment without overspending their account?


    3. Response: If the cost of the equipment exceeds funds available, contact the Treasurer's Office to arrange for internal financing.


  3. Why do all costs have to be charged to the service center account?


    4. Response:The break-even principle means that costs equal revenues. For this to be evident, all costs used in the determination of your rates must be charged to your account.


  4. Is it permissible for an account to "pre-bill" other university accounts? Off-campus customers?


    5. Response:
    Other university accounts: No, except for services normally prepaid such as conference registration fees.

    Off-campus customers: No, unless the customer is a credit risk and the unit wants the money in advance.

  5. How often should I bill for the services of my service center?


    6. Response: Ideally, the service center should bill monthly for the services provided. However, this may not be feasible for smaller service center operations. In that case, the service center should bill at least quarterly.


  6. What kind of documentation should I provide as support for my service center billings?


    7. Response:A statement or invoice would be the best format to provide documentation for the service center's billing. At a minimum, the statement should include the name of the service center, the date(s) of service, description of service, amount charged for the service, and the account number being charged.