Term -Indirect Cost Rate

The percentage or dollar factor that expresses the ratio of indirect
expense incurred in a given period to direct labor cost, manufacturing
cost, or another appropriate base for the same period (see also “final
indirect cost rate”).

An indirect cost rate is simply a mechanism for determining fairly and conveniently within the boundaries of sound administrative principle,
what proportions of Departmental/organization administration costs each
programs should bear. An indirect cost rate represents the ratio between the total indirect costs and benefiting direct costs, after excluding and or reclassifying
unallowable costs, and extraordinary or distorting expenditures. (i.e.,
capital expenditures and major contracts and subgrants). The indirect
costs in the numerator of the equation should bear a reasonable
relationship to the direct costs from the denominator. This will allow
for each program or activity represented in the direct costs base to
assume their fair share of indirect costs when the rate is
applied.

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