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appropriate allocation of indirect costs. <br />c. Any cost allocable to a particular Federal award or cost objective under the principles <br />provided for in this Circular may not be charged to other Federal awards to overcome fund <br />deficiencies, to avoid restrictions imposed by law or terms of the Federal awards, or for other <br />reasons. <br />d. Where an accumulation of indirect costs will ultimately result in charges to a Federal award, a <br />cost allocation plan will be required as described in Attachments C, D, and E. <br />4. Applicable credits. <br />a. Applicable credits refer to those receipts or reduction of expenditure-type transactions that <br />offset or reduce expense items allocable to Federal awards as direct or indirect costs. Examples <br />of such transactions are: purchase discounts, rebates or allowances, recoveries or indemnities on <br />losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To <br />the extent that such credits accruing to or received by the governmental unit relate to allowable <br />costs, they shall be credited to the Federal award either as a cost reduction or cash refund, as <br />appropriate. <br />b. In some instances, the amounts received from the Federal Government to finance activities or <br />service operations of the governmental unit should be treated as applicable credits. Specifically, <br />the concept of netting such credit items (including any amounts used to meet cost sharing or <br />matching requirements) should be recognized in determining the rates or amounts to be charged <br />to Federal awards. (See Attachment B, item 11, "Depreciation and use allowances," for areas of <br />potential application in the matter of Federal financing of activities.) <br />D.Composition of Cost <br />1. Total cost. The total cost of Federal awards is comprised of the allowable direct cost of the <br />program, plus its allocable portion of allowable indirect costs, less applicable credits. <br />2. Classification of costs. There is no universal rule for classifying certain costs as either direct <br />or indirect under every accounting system. A cost may be direct with respect to some specific <br />service or function, but indirect with respect to the Federal award or other final cost objective. <br />Therefore, it is essential that each item of cost be treated consistently in like circumstances either <br />as a direct or an indirect cost. Guidelines for determining direct and indirect costs charged to <br />Federal awards are provided in the sections that follow. <br />E.Direct Costs <br />1. General. Direct costs are those that can be identified specifically with a particular final cost <br />objective. <br />2. Application. Typical direct costs chargeable to Federal awards are: <br />2. Application. Typical direct costs chargeable to Federal awards are: <br />a. Compensation of employees for the time devoted and identified specifically to the <br />a. Compensation of employees for the time devoted and identified specifically to the <br />10 <br /> <br />