Yearend Unallocated Costs 1 What are unallocated costs

Year-end Unallocated Costs 1

What are unallocated costs? • Unallocated costs are costs that cannot be directly related to: • A specific road • Construction/engineering project • Equipment unit • Every effort should be made to charge costs directly to the appropriate cost area before using unallocated accounts. • Unallocated costs are divided between two categories: • Highway related • Administration • Maintenance • Construction/engineering • Shop/equipment • Non-highway related • These should be isolated and will not be distributed highway activities 2

Administrative costs • Are expenses that are not directly attributable to a specific activity • Any unapplied administrative costs will be included with the maintenance reporting by road system as unallocated • Examples of unallocated administrative costs are: • Administrative salaries • Engineering computer program/service contract • Fringe Benefits • County FICA, Medicare, PERA Expenses • County Health Insurance Expense for employees • Vacation, sick leave, personal leave, military leave, etc. • Minor office furniture/equipment • Office supplies • Training and education • Travel and lodging 3

Administrative costs (continued) • A portion of the engineer’s salary may be moved to the construction area • Based on a fair estimate of the engineer’s time • Documentation should be on file to show this estimate was determined • Some costing systems distribute Fringe Benefits directly to labor costs by actual Fringe Benefit Costs for • The period by actual labor activities OR • inflate actual labor rates by a Fringe Benefit Overhead Rate. 4

Administrative costs (continued) • If Fringe Benefits are applied to actual labor costs • The amount applied will appear in a separate column on various reports provided by the costing system • The credit offset for the Fringe Benefit Expense will be cash or a liability account • If Fringe Benefits are applied by inflating actual labor rates by a Fringe Benefit Overhead Rate • The labor cost column on various reports will be inflated by the Fringe Benefit Overhead Rate • Reports may be printed including or excluding the Fringe Benefit Overhead Rate • The credit offset for the Fringe Benefit Overhead Rate is included in the Fringe Benefit section of the unallocated costs 5

Administrative costs (continued) • Fringe Benefit Overhead Rate Calculation • Isolate and identify all benefits for full time employees that are a part of the county’s employment package. • Identify the total labor dollars worked for full time employees • Calculate the Fringe Benefit Overhead rate by dividing the Fringe Benefits by the total labor dollars for full time employees. 6

Administrative costs (continued) Fringe Benefit Overhead Rate Calculation 7

Construction costs • Unallocated construction costs • Expenses relating to construction operations that cannot be identified to a particular construction project. • The costs in these accounts should be prorated to engineering based on total costs of the projects at year-end. • If the county chooses, they may seek reimbursement of these engineering costs using their State Aid allocation. • Examples of unallocated construction costs include: • Alignment surveys • Cross section stock piles • Drafting supplies • Engineering expense • Engineering field work • Field engineering supplies • General permits • Road studies • Wetlands bank/mitigation 8

Construction costs (continued) • Education and training costs related to the county engineering staff • Are not allowed to be prorated to construction projects or individual roads • These costs should be included in the administrative unallocated dollar amount on the maintenance report by road system 9

Maintenance costs • Unallocated maintenance costs • Are maintenance expenses that are difficult to associate with a particular road • All efforts should be made to charge to the individual roads before using unallocated maintenance accounts • After costs have been accumulated in each unallocated account • They may be spread to the individual roads in the appropriate maintenance account • Unallocated maintenance costs may be distributed to the roads based on • Total mileage • System mileage • Surface mileage • Labor • Number of intersections, curves, and hills • The formula used to distribute unallocated costs will be determined by the type of unallocated cost 10

Maintenance costs (continued) • Examples of unallocated maintenance costs include • Annual bridge inspections and report • Bridge inspections (not related to a project) • Building barricades • Gravel (stockpiled, crushing, prospecting) • Maintenance supplies for specific maintenance accounts (brooms for minor surface maintenance sweeping) • Salt and sand, materials and mixing costs • Sign materials • Straightening sign posts • Traffic studies/counts • Weight restrictions • Weight scale calibration 11

Maintenance costs (continued) • Most unallocated costs • Will be distributed by mileage • Some costs that will be distributed based on special distribution formulas • Each county should develop a method of allocating materials they choose to spread that works best for them • Salt and sand is a good example of a special distribution formula • It’s usually applied to bituminous or concrete surfaces only at intersections, curves and hills • A survey of all road systems should be done to determine the number of intersections, curves and hills on bituminous or concrete roads • Example • CSAH regular: 120 intersections, 55 curves, 30 hills = 205 • CSAH municipal: 110 intersections, 20 curves, 3 hills = 133 • County roads: = 45 30 intersections, 5 curves, 10 hills 12

Maintenance costs (continued) • Based on this example • The percentage of salt and sand distributed to CSAH regular would be 54% • CSAH municipal would be 35% • County roads would be 11% • The salt and sand would be distributed to each road program • Based on the calculated percentages to bituminous or concrete surfaces only • Using this formula will place more costs on the CSAH municipal roads since the number of CSAH municipal miles are usually the least of the county’s road systems. 13

Shop/equipment costs • Unallocated shop and equipment costs are expenses • Relating to shop and equipment operations that cannot be identified to a particular unit • Examples of unallocated equipment costs include • Shop overhead (utilities) • Shop supplies and small tools • Miscellaneous repair parts • Building and grounds maintenance • Inventory adjustments for fuel • Inventory adjustments for parts and replacements 14

Shop/equipment costs - Continued • Inventory adjustment • Should be held to a minimum through the use of good inventory control and management • Should become part of cost added to equipment • And prorated back to the units in developing a rate • Or ultimately become an entry into adjustment to equalize depreciation 15

Non-highway related costs • Non-highway costs • Should be accumulated in the area for county dollars or authorized work for others. • Non-highway related activities must not be included in the unallocated costs which are distributed to the road system • Non-highway costs may include costs associated with: • Capital outlay • Ditch fund for flood control • Agricultural inspection • Work for others • Other non-highway related costs • 911 signing 16

Conclusion • Every effort should be made to charge costs directly to the appropriate cost area before using unallocated accounts. • Unallocated costs are divided between two categories – highway related and nonhighway related • The highway related unallocated costs are divided into categories for administration, maintenance, construction/engineering and shop/equipment • Non-highway related unallocated costs should be isolated and will not be distributed highway activities • A worksheet for distributing unallocated costs at year-End is available on the State Aid Finance Worksheets & Applications webpage 17

Questions? Mike Kilanowski michael. kilanowski@state. mn. us 651 -558 -6508 18