Cost Allocation Plans

Telecommunications Cost Allocation Plan

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State Data Center Cost Allocation Plan

Purpose

The State Data Center (SDC) Cost Allocation Plan documents the method used by the SDC in developing its billing rates for each of the data processing services provided to SDC customers. The authorization to develop rate structures and establish a charging system is provided for under the Omnibus Reorganization Act of 1974.

Cost Allocation Method

A cost-based development method was employed in establishing billing rates. The benefits of this cost based method are two. First, it is a full-cost recovery process. That is, both direct and indirect costs are included, which minimizes the potential problem of under/over recovery of the SDC's total budgeted costs. Second, each customer is treated in an equitable manner. That is, the rate is based upon the amount of resources used.

This method requires the development of a cost allocation plan which is accomplished through the execution of the following work steps:

1. Determine rate category for services provided - The types of customer services provided by the SDC are identified and approved by the Steering Committee.
2. Establish units of service - The unit of service used to measure the volume of service provided for each service type is established based on three major criteria:
   1. relationship to the function performed
   2. measurability
   3. controllability by the customer

• Compile customer estimated utilization - The estimated utilization by customer for each service provided is compiled. The individual estimates are then totaled to develop the basis for computation of the billing rate.

NOTE: Utilizations for FY06 were used as a basis for developing the FY07 estimates.

• Identify types of cost - Two basic types of cost are identified, allocated direct and allocated indirect. Allocated direct costs are those personnel and expense and equipment costs that can be directly identified with providing a type of service. Allocated indirect costs are related support costs that cannot be directly identified with providing a specific type of service.
• Determine allocated direct costs - Budgeted personnel and expense and equipment costs that can be directly identified with providing a specific type of service are accumulated to determine total allocated direct costs by type of service.
• Determine allocated indirect costs - Budgeted costs identified as allocated indirectly are prorated among the types of service.
• Summarize total costs by service - Total cost by service is determined by adding the direct and indirect allocated costs and job costs.
• Calculate rate per unit of service - The rate per unit of service is calculated by dividing the total annual cost by the total estimated annual utilization.