Allowability of project costs is key to developing a proposal budget and for financial management of a sponsored project.

Many sponsors have policies that address costs that are allowable. If an expense is not allowable on an award, you must charge it to an unrestricted funding source.

Allowable costs are:

• Reasonable: A cost may be considered reasonable if the nature of the goods or services and the amount of cost involved reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made.
• Allocable to the project: A cost is allocable to a sponsored project if (1) it is incurred solely to advance the work under the sponsored agreement or (2) it benefits both the sponsored project and other work of the institution in proportions that can be approximated through use of reasonable methods.
• Necessary for the project.
• Treated consistently for all work of UMB under similar circumstances, regardless of the source of funding.
• Compliant with sponsor and award restrictions, limitations, or exclusions.
• Incurred during the project period.
• Adequately documented.
• Not charged elsewhere (no double-charging).
• Consistent with UMB's policies and procedures.

NIH Grants Policy on allowability of costs/activities

2 CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
Subpart E, Cost Principles