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The University is required by the Financial Memorandum between it and 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.

In addition to establishing the full economic cost of an activity, consideration should also be given to the price which can be charged.

It may be the case that it costs £100 to create an item for sale, but the highest price that anyone in the market will pay is £80. In such cases 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.

For example, if the price to be charged is so high that the activity becomes inaccessible to all but the wealthiest, then the activity may not be regarded as charitable.

Heads of Departments are responsible for ensuring charges make due allowance for all relevant costs and that they are aware of the extent, if any, to which Departmental 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 give consideration to all the costs associated with producing the final output. 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 of the costs incurred by the process need to be included, some examples are given below:

  • Packing and shipping
  • Related payment charges - ePDQ, PDQ, BACs, exchange gains/losses
  • Advertising

As well as the direct costs most activities will use a proportion of additional resources that the department already pays for, these are indirect costs to the activity. 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. These costs are often considered incidental to the running of the department and include:

  • Core Staff costs - time spent on administration and sale, raising of invoice and receipting payment
  • Incidental use of other Departmental facilities and services
  • Space costs - Lighting, heating etc.

Further guidance and advice is available from School Finance Managers and from Research Operations Office (ROO).

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 Department 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 as per Financial Regulations 2012, section 12.1

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