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4/13/76 from sources other than the grant program involved to finance operations or capital items of the grantee. This includes costs arising from the use or depreciation of items donated or financed by the Federal Govern- ment to fulfill matching requirements under another grant program. These types of credits should likewise be used to reduce related expenditures in determining the rates or amounts applicable to a given grant. D. Composition of coat. 1. Total cost. The total cost of a grant program is comprised of the allowable direct cost incident to its performance, plus its al- locable portion of allowable indirect costs, less applicable credits. 2. Classification of costs. There is no uni- versal rule for classifying certain costs as either direct or indirect under every account- ing system. A cost may be direct with respect to some specific service or function, but indi- rect with respect to the grant or other ultimate cost objective. It is essential therefore that each item of cost be treated consistently either as a direct or an indirect cost. Specific guides for determining direct and indirect costs al- locable under grant programs are provided in the sections which follow. E. Direct costa. 1. General. Direct costs are those that can be identified specifically with a particular cost objective. These costs may be charged directly to grants, contracts, or to other programs against which costs are finally lodged. Direct costs may also be charged to cost objectives lased for the accumulation of costs pending distribution in due course to grants and other ultimate cost of objectives. 2. Application. Typical direct costs charge- able to grant programs are: a. Compensation of employees for the time and effort devoted specifically to the execution of grant programs. b. Cost of materials acquired, consumed, or expended specifically for the purpose of the grant. AC 150/5100-10A Appendix 4 c. Equipment cost and other approved capital expenditures incurred specifically for the purpose of the grant. d. Other items of expense incurred spe- cifically to carry out the grant agreement. e. Services furnished specifically for the grant program by other agencies, provided such charges are consistent with criteria out- lined in Section G of these principles. F. Indirect coats. 1. General. Indirect costs are those (a) -in- curred for a common or joint purpose benefit- ing more than one cost objective; and (b) not readily assignable to the cost objectives spe- cifically benefited, without effort dispropor- tionate to the results achieved. The term "indirect costs," as used herein, applies to costs of this type originating in the grantee depart- ment, as well as those incurred by other de- partments in supplying goods, services, and facilities, to the grantee department. To facilitate equitable distribution of indirect ex- penses to the cost objectives served, it may be necessary to establish a number of pools of indirect cost within a grantee department or in other agencies providing services to a grantee department. Indirect cost pools should be distributed to benefiting cost objec- tives on bases which will produce an equitable result in consideration of relative benefits derived. 2. Grantee departmental indirect costs. All grantee departmental indirect costs, including the various levels of supervision, are eligible for allocation to grant programs provided they meet the conditions set forth in this Appendix. In Lieu of determining the actual amountof grantee departmental indirect cost allocable to a grant program, the following methods may be used : a. Predetermined fixed rates for indirect coats. A predetermined fixed rate for com- puting indirect costs applicable to a grant may be negotiated annually in situations where the cost experience and other perti- nent facts available are deemed sufficient to enable the contracting parties to reach an informed judgment (1) as to the probable Page 3