In our last episode, I laid the groundwork by walking through 2 CFR 200, Sections 400 and 401, the policy guide and the application. This week I'm building on that foundation and getting into what I think is one of the most practical parts of Subpart E: composition of cost. We're covering Sections 402 through 406, and by the end of this episode you'll have a much clearer picture of how a cost actually gets built, not just whether it's allowable.

Every dollar you charge to a federal award can be questioned unless you can prove it's approved, appropriate, necessary, reasonable, and reimbursable. That's the lens I use for this whole episode.

What You'll Learn:

• The simplest formula in Subpart E: I break down Section 200.402: total cost equals direct costs plus applicable indirect costs, minus applicable credits. If it doesn't fit one of those categories, it doesn't belong in your award total.
• Why classification trips people up: Costs usually go wrong not because they're bad expenses, but because they're classified or calculated inconsistently.
• The allowability checklist in Section 200.403: Necessary, reasonable, consistent with award terms, consistent with your own policies, treated consistently as direct or indirect, GAAP-compliant, not double-charged, and documented. Miss one, and it's unallowable.
• What "reasonable" really means: I unpack the "prudent person" standard in Section 200.404 and why reasonableness is judged on what you knew at the time, not in hindsight.
• Allocable costs, explained simply: Section 200.405: a cost is allocable if it can be assigned to an award in proportion to the benefit received. I also cover why you can't shift costs between awards to fix a budget problem.
• Applicable credits and why they're so easy to miss: Section 200.406: discounts, rebates, refunds, and overpayment adjustments must be credited back to the award. Ignoring them is a common, avoidable compliance issue.
• How it all works as one package: These five sections aren't standalone, they work together to tell you how a cost is built, allowable, reasonable, allocated, and adjusted.

Key Quote:

"A cost is reasonable if it does not exceed what a prudent person would incur under the circumstances at the time the decision was made to incur that cost."

Connect with Jasmine & Markanday Consulting:

• Instagram: ⁠@markandayconsulting⁠

• LinkedIn: ⁠@markandayconsulting

• Website: www.markanday.consulting

If you found this episode useful, please subscribe, rate, and share it with your colleagues and networks. Next episode, we're taking a deeper dive into Sections 200.407 and 200.408, where we get into prior approvals and cost limitations, the rules that shape what you can and cannot charge to your award. Until then, stay informed and stay compliant.