The university may have to build equipment that is not available elsewhere. This equipment will be primarily used in the area of research performed under a sponsored project.
To ensure we account for such costs on a consistent basis and to ensure compliance with federal regulations, the university has developed the procedures described below.
Treatment of Indirect Costs (Overhead) on Fabricated Equipment
The university may create equipment that is not available elsewhere. Fabricated property items are created either for use by the sponsor or for use by the university in the research program.
Standard items that are altered or customized to make them usable on a sponsored project do not qualify as fabricated property.
Non-expendable, tangible personal property which has an acquisition cost of $5,000 or more per item (including sales tax and excluding freight) and a life expectancy of more than one year is defined as equipment.
Fabricated items regardless of cost that are either created for transfer to a non-university entity, or are expected to have a useful life of less than one year, do not meet the university's definition of inventorial equipment and should not be treated as such.
Non-federal sponsors may define equipment differently from the university and, once accepted, this definition becomes the definition for the purposes of the specific agreement.
Total cost is greater than $5,000, life expectancy is more than one year, title is retained by the university
If a piece of equipment is to be fabricated, the cost of its components plus all materials, labor, supplies, and services from outside vendors or authorized internal recharge activities provided by campus recharge units used in the fabrication process are exempt from indirect costs if all of the following three requirements are met:
- The total cost is greater than $5,000
- The item has a useful life expectancy of more than one year
- The title is retained by the university
Department labor, travel, or other operating expenses associated with the fabrication such as salaries of Principal Investigators, graduate student researchers, or other comparable personnel who participate in the fabrication process are not included in the acquisition cost of the item and are subject to indirect costs.
Total cost is less than $5,000
If the fabricated item has a total cost of less than $5,000, it does not meet the definition of inventorial equipment and all fabrication costs are subject to indirect costs.
Life expectancy is less than one year
If the fabricated item has a life expectancy of less than one year, it does not meet the definition of equipment and all fabrication costs are subject to indirect costs.
Title is not retained by the university
If the fabricated piece of equipment is a deliverable and the title is not retained by the university, all costs of its fabrication are subject to indirect costs.
General Ledger Account Codes
Please use the following account codes to record fabrication costs on contracts and grants expenditures.
Please note: We have discontinued the use of account 54230. These cost are now reported in account 54231 along with all other inventorial fabrication costs.
54231 Inventorial/Capitalized Fabrication Costs of Equipment
- Services, labor from outside vendors or campus recharge units, materials, supplies, and equipment used for in-house fabrication of inventorial or capitalized equipment
- The total cost of all components of fabricated equipment must have a cost of $5,000 or more per item
- The title is retained by the university
- The equipment has a life expectancy of more than one year
These costs of fabrication are exempt from indirect overhead on contracts and grants expenditures.
55301 Non-inventorial/Non-Capitalized Fabrication Costs
- Services, labor from outside vendors or campus recharge units, materials, supplies, and equipment used for in-house fabrication of non-inventorial or non-capitalized equipment
- The fabrication costs are either for a non-UC entity
- The total cost of the item is less than $5,000
- The life expectancy of the equipment is less than one year
These costs of fabrication will be subject to indirect cost.
The department fabricates two gauges and the total cost of materials, labor, and other costs of the equipment is $9,200:
- In this example, all costs are charged to account 55301 and overhead is assessed on the expenditures as the cost of each gauge is less than $5,000
The equipment cost is $100,000, the useful life expectancy is seven years, and the sponsor originally retained the title but at the end of the award the sponsor passes the title to the university:
- In this example, all costs are charged to account 55301 and overhead is assessed on the expenditures as at the time of fabrication the intended owner of the equipment was the third party
The department fabricates radioactive detection equipment with a total cost of $34,000, the sponsor assigns the title to the university, and the assets are used in research. The equipment's planned use is for one test due to radioactive contamination of the equipment, rendering the equipment unusable for future use. The experiment takes seven months:
- In this example, all costs are charged to account 55301 and overhead is assessed as the life expectancy of the equipment is less than one year
The equipment cost is $900,000, the useful life expectancy is five years, and the university retains the title:
- In this example, all costs are charged to account 54231 and overhead is not assessed on the costs as the equipment is defined to be inventorial with a useful life expectancy in excess of one year and the university owns the equipment
For additional information on fabrication:
- UC Berkeley Property Management - Policies
- UC Contract and Grant Manual - the university's definition of inventorial equipment is described in Chapter 2-526
- UC Contract and Grant Manual - Chapter 7, Section 7-205
- Accounting Manual - Chapter P-415-32, Plant Accounting: Inventorial Equipment-Fabricated Items
- Additional information concerning fabricated equipment is found in Section B-Ic. of BUS-29
- UC Berkeley Property Management - Procedure for Initiating Fabrication