Direct vs. Indirect Costs

Two types of expenses are associated with sponsored funding: direct costs and Facilities and Administrative (F&A) or indirect costs. The "Infographic: Costs of Federal Research" linked on this page may be helpful in distinguishing the two types of costs. 

Direct Costs

• Direct costs are any cost that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned (allocated) to such activities relatively easily with a high degree of accuracy. 
• Direct costs may include, but are not limited to:
  • Salaries
  • Travel
  • Equipment
  • Supplies directly supporting or benefitng the grant-supported project or activity
• If directly related to a specific award, certain costs that otherwise would be treated as indirect costs may also be considered direct costs.     

Indirect Costs (Facilities & Administrative costs)

• Indirect costs (or F&A) are costs incurred for a common or joint objective that cannot be readily identified with an individual project or program. Examples include operations and maintenance (e.g. utilities, janitorial services); depreciation, use of buildings and equipment; sponsored project administration and accounting; and library expenses and collection acquisition. These costs are crucial for conducting effective research, as they cover infrastructure, operations, and compliance with regulations. Each sponsored project contributes to these research infrastructure costs and the indirect cost rate is applied to all projects, regardless of sponsor. The indirect cost rate is negotiated between BGSU and the US Department of Health and Human Services. Not all direct costs are included in this rate; items like capital equipment, tuition, participant support costs, each subaward in excess of $25,000, and rental costs are excluded from the rate calculation (also known as Modified Total Direct Cost or MTDC).
• Example:
  • A research project has:
    • $70,000 for salaries/fringe
    • $10,000 for supplies
    • $20,000 for a big piece of equipment
  • The total direct costs are $100,000. But since the equipment doesn’t count in MTDC, we subtract that:
    • MTDC = $100,000 - $20,000 = $80,000
  • If the indirect cost rate is 45%, the university would get 45% of $80,000 = $36,000 to help pay for overhead.