Topic 1: Reasonable vs. Allocable Costs
* Reasonable Costs – 45 CFR 75 §75.404
* §75.405 – Allocable Costs
Jake: “Council members know that costs must be reasonable and allocable, but what does that mean exactly? What makes a cost reasonable and what makes it allocable?”
| Reasonable Cost | Allocable Cost |
| Is the cost recognized as ordinary and necessary for the proper and efficient performance of the Council? | Are the costs chargeable or assignable to the Council award with relative benefits received? |
| Are sound business practices being followed that adhere to federal, state, and other laws and regulations as terms and conditions of the federal award? | Was the cost incurred specifically for the Council award? |
| Are the costs in line with market prices for similar goods and services for the geographic area? | Was there a benefit to the Council? |
| Are there deviations from established practices and policies that may increase costs? | Was the cost necessary to the overall operation of the Council? |
| A reasonably prudent person is an individual who uses good judgment or common sense in handling practical matters. The actions of a person exercising common sense in a comparable situation are the guide in determining whether an individual’s actions were reasonable. | Useful information to determine allowable costs: 45 CFR 75, Subpart E, Cost Principles |
The next topic in this series will help us better understand the role of compliance and how funds are used.