Rate Measurement Examples
Examples of Types of Rate Measurements
General Rate Calculation
In its simplest form, or for a one-product service unit, an activity’s rate is cost-based. Users are allocated a share of the activity’s costs based on the relative use of the activity’s products or services. A single, unitized cost rate (cost per unit of output) is used to recover the expense of providing a product or service. This rate is calculated by dividing the total budgeted expense for providing the product or service by the total projected level of activity for the budget period.
“Total budgeted expense” equals all costs directly associated with the activity’s operations. "Projected Level of Activity" is the total estimated volume of work to be performed in an activity, expressed as labor or machine hours, CPU time, or units of products or services to be provided. This is the denominator to be used in the calculation of the rate, as shown below. The actual level of activity multiplied by the rate determines the amount to be charged to each user.
Total Budgeted Expense
(Plus Prior Year Deficit, or Minus Prior Year Surplus)
Rate = ____________________________________
Total Projected Level of Activity For the Budget Period
While most activity rates will be cost-based for each specific service or product, an activity offering multiple related services or products may establish rates for a variety of services that, in aggregate, recover the total costs of the activity. The activity must be able to demonstrate it has made reasonable assumptions in allocating common costs that cannot be easily identified to a specific service or product within the unit. Rates are normally calculated on an annual basis. Adjustments may be made as needed during the year to accommodate changing circumstances and to ensure the unit remains within tolerance.
TYPES OF RATES (UNIT OF MEASURMENT)
Per Hour Unit:
Total direct costs: salaries & benefits, supplies & expenses and equipment depreciation are divided by total number of hours that will be allocated in the rate activity.
Example: Kearney Research Center conducts 72 different projects during their Program year that require labor. Since the projects vary in size, type and scope Kearny Research Center has decided the most appropriate unit of measurement is per hour.
Per Acre Unit:
Total direct costs: Personnel, supplies, repairs and depreciation are divided by total number of acres.
Used when expenses are relevant to all acreage assigned and projects utilize direct costs equally across the acreage.
Example: At Lindcove Research Center all research projects are related to citrus trees. Lindcove added the following direct costs: Irrigation water and the electricity to run irrigation pumps and created a per acre rate for all research projects utilizing Citrus trees.
Per Project Unit:
Total direct costs: Personnel, supplies, repairs and depreciation are divided by total number of projects for the program year.
Used when a majority of expenses are for maintaining research areas vs. a specific task within a project.
Example: Hopland Research Center maintains 5000 plus acres of natural wilderness for researchers who would like to conduct research in wilderness and natural settings. Direct costs are for tasks such as back road maintenance, fire prevention brush control, keeping large areas clear for access to wooded areas. A typical research project will require access to some part of the Center, either a wooded area or large natural pasture area.
Per Lab space unit:
Total direct costs: Personnel, supplies, repairs and depreciation can be divided by total space measurement (per table or per square foot).
Used when total costs are relevant to all projects utilizing Lab space.
Example: A Research Center has 4 greenhouses. The research center added costs such as electricity to run greenhouse, staff time to maintain and repair greenhouse, staff time to monitor temperature in greenhouse and divided those costs by the number of tables within the greenhouse used by researchers to grow plants.
Per poster unit:
This rate is per square foot of printed poster. Ink and paper can be divided by number of square feet.
Example: ANR Communication Services prints posters for ANR units. Although the poster printing does take staff time, the amount of time to set up for one poster or fifty posters to be printed remains the same, so an hourly rate is not logical. Another reason for computing the rate on a square foot basis is that most of the cost is ink and paper which is directly related to the size of the poster(s) being printed. Rather than socialize the costs into an hourly rate, the square foot rate attributes the costs more directly to the service recipient.