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The University is required by the Office for Students to assess the full cost to the University when determining the price to be charged for research contracts, residences, catering, conferences, and services to external customers.
Heads of Institutions are responsible for ensuring charges allow for all relevant costs and that they are aware of the extent, if any, to which institution resources have subsidised the sale. If applicable, justification of the subsidy may be required for audit purposes.

Costs to be considered

When costing an activity, it is important to consider all the costs associated with producing the final output.

Direct costs: Some direct costs such as materials and staff employed specifically to work on the activity will be apparent and easy to calculate. However, some direct costs may be hidden or incurred later. All the costs incurred by the process need to be included, for example:

  • packing and shipping
  • insurance
  • advertising
  • related payment charges which may be incurred later by the institution or centrally, such as credit card processing charges, BACS, exchange rate gains/losses

Indirect costs: are hidden costs and include resources that the institution already pays for. These must be agreed in advance as part of the contract or customer purchase order. Disputes about this type of cost are more likely, and recovery of debts can prove difficult when an agreement has not been made in advance. To fully cost an activity it is necessary to calculate what percentage of these resources are used by the activity and include the relevant amount in the costing calculation. For example:

  • core staff costs – time spent on administration and sale, raising of invoice and receipting payment
  • incidental use of other institution facilities and services
  • space costs, such as lighting and heating

Further guidance and advice is available from Finance Business Partners or institution heads of finance, and from the Research Operations Office (ROO).

Establish Cost vs Price

In addition to establishing the full economic cost of an activity, institutions must consider the price which can be charged, bearing in mind the effect on the University’s charitable status.
For example, the cost of creating an item for sale might be £100, but the highest price that the market will pay is £80. In this case there is little reason to continue with the activity unless it is in furtherance of our charitable aims. Alternatively, an item may cost £100 to produce, but the market will bear a price of £500. However, this does not mean that the highest price obtainable should always be the price charged. If the price makes the activity inaccessible to all but the wealthiest, then it may not be regarded as charitable.

Sales to employees and members of the University

Sales to employees and members of the University must be at a rate that covers the full cost to the University. If, exceptionally, this is not the case, the Head of Institution must approve the transaction in writing. Any sales made at undervalue (including where no charge is made) to employees or their families must be recorded and reported as a taxable benefit at the end of the tax year.1  

  1Financial Regulations 2012, Income and Expenditure, section 12.1

Latest version 16 April 2024

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