# Costs & Budgets ### Types of Cost **Capital & Revenue cost:** - Capital costs: are one-time purchases of fixed assets that will be used for revenue generation over a longer period - more than one year. - Revenue costs: are referred to as operating expenses, which are short-term expenses that are used in running the daily business operations. **Fixed and Variable Costs:** - Fixed cost is one that does not change in total within a reasonable range of activity. Since the fixed cost remains constant in total, the fixed cost per unit of activity decreases when the volume increases, and increases when the volume decreases. - Variable cost or expense is where the total cost changes in proportion to changes in volume or activity. **Nonprofits account for functional expenses-allocation based on purpose of the expense:** - Direct Costs: A cost which results in direct benefit to a beneficiary. Can be directly attributed to a program or intervention. No cost if no program activity. Categorised as Program and Admin/Operating costs. - Overheads/Indirect/Common costs are core/support costs for general/administration, fundraising etc. These costs are not directly attributable to any specific outputs. Suitable common cost policy for computing Indirect cost rate (ICR) detailing the allocation principle and updation of rate for negotiation with the donors. Common direct cost is also an indirect cost. - Historical cost: the price paid for a god when it was purchased. - Sunk cost: money spent that cannot be recovered. - Marginal cost: increase or decrease in the cost of producing one more unit or serving one more customer. - Opportunity cost: forgone cost for available alternatives given the resource constraint. #### Cost Principles in grant budgeting Costs budgeted for a project grant should be: - Allowable cost - costs which are not subject to any restrictions/limitations in the grant award. - Allocable cost - costs which are incurred specifically for the attainment of the objective of the grant. - Reasonable cost - cost which is generally recognized as necessary to be incurred by a prudent person in the conduct of normal business. - Consistent cost - this is applied in the same fashion throughout the grant. - Unallowable cost - those costs that cannot be incurred and paid under the grant. ### What is a budget? A budget is an estimation of revenue and expenses over a specified future period of time. A budget is a financial plan. It is financial blueprint of the project plan. Pre requisites are: - Organisation structure. - Data. - Chart of accounts. - Managerial support. - Formal process of budgeting. #### Types of Budgets: Activity budget **Activity based budget**, as the name suggests, covers the costs required for implementing a project activity. For example: If project strategy is to build the capacity of civil society leaders, workshops are an activity. Workshops costs would be towards hiring resource persons, booking a venue, transportation cost, food, lodging and materials and handouts. #### Illustration: Activity Budget for Conducting a Workshop
**Particular of Expense** | **Rate per unit** | **No of Units** | **Total in Rs** |
Trainer Fees | @ Rs 1000 per day | 3 days | 3,000 |
Venue | @ Rs 500 per day | 3 days | 1,500 |
Rental for Furniture | @ Rs 500 per day | 3 days | 1,500 |
Rental for Equipment | @ Rs 100 per day | 3 days | 300 |
Catering Exp for Lunch and tea two times | @ 100 per person | 55 persons X 3 days= 165 | 16,500 |
Conveyance paid to attendees | @Rs 50 per person per day | 50 attendees x 3 days = 150 | 7,500 |
Printing of handouts | @ Re 1 per page | 50pages x 50 copies= 2500 pages | 2,500 |
**Grand Total** | **32,800** |
**Line Item Budget** | ||||
**Expenses** | **Units** | **\# of Units** | **Unit Rate ($)** | **Costs ($)** |
**Human Resources:** | ||||
CEO | Per day | 3 | 350 | 1,050 |
Trainer Fees | Per day | 2 | 200 | 400 |
Subtotal Human Resources | 1,450 | |||
**Travel:** | ||||
Trainer Airfare | Per Person | 1 | 300 | 300 |
Participant Transportation | Per Person | 30 | 10 | 300 |
Subtotal Travel | 600 | |||
**Equipment & Supplies:** | ||||
Materials & hand-outs | Per Person | 30 | 15 | 450 |
Total Equipment & Supplies | 450 | |||
**Other Costs, Services:** | ||||
Venue | Per Day | 2 | 300 | 600 |
Catering | Per Person | 30 | 15 | 450 |
Subtotal Other Costs, Services | 1050 | |||
**Subtotal** | 3550 | |||
Overhead (10%) | 355 | |||
**Total** | **3905** |
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