Fabricated Equipment

Introduction

Periodically, in the course of research, there is a need to build a piece of customized equipment for functionality that does not currently exist. Fabricating this piece of equipment would normally take place at the University and may follow a phase of Research and Development. The cost of fabricating that piece of equipment needs to be properly accounted for so that it can be valued, tagged, and recorded as an asset to be depreciated over its useful life.

Definition

Fabricated equipment consists of non-expendable, tangible, personal property, physically constructed by University of Alaska activity at the University. The fabricated equipment must have a total acquisition cost of $5,000 or more, is free-standing, is complete in itself, does not lose its identity when affixed to or installed in other property, and is expected to be used by the university for more than one year.

Criteria

  • The need to fabricate an asset comes about when equipment does not already exist off the shelf or additional functionality needs to be added to an existing piece of equipment.  
  • Fabricated equipment must be University titled (not a deliverable or agency-owned asset). 
  • Equipment fabrication must meet the same definition as equipment, i.e., has a total fabrication cost greater than $5,000 and a useful life of greater than one year.  

All materials, supplies, and services from outside vendors or authorized internal recharge activities used in the fabrication are exempt from indirect costs if 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.

Costs that MAY be included in Fabricated Equipment:

Allowable costs that may be included in the cost of equipment fabrication must be incurred in association with constructing the approved design following the completion of the R&D phase.

  1. Design Costs - including procurement of drawings and schematics based on the approved final design , development of component specifications and development/production of operating documents and flow charts. Need to clearly differentiate between R&D design costs and allowable design costs.   For example, we could say «Work prior to and through completion of a non-working model would be considered R&D.   After a build-to specification is complete, work to fabricate a working item, including design modifications caused by fabrication or discovered design flaws, would be considered allowable.  
  2. Recharge services and supplies internal to the University required for building the approved design
  3. Services external to the University (Service contracts) if required for fabrication of the equipment and incurred after the completion of the R&D phase
  4. Supplies and Materials required for the fabrication
  5. Construction Costs - if it meets the fabrication criteria and is to be used for its designed purpose only or if it does not meet the fabrication criteria, but contributes directly to the design of another item that does meet the fabrication criteria .
  6. Equipment (off the shelf).   The purchase request must indicate that the equipment is being acquired on a fabrication budget.
  7. Maintenance contract (first year only) on a sub-component (if in place at the time the asset is initially put into use)
  8. Software If sole use is for the fabricated item, or it is a critical part of the equipment (i.e. Equipment would not function without it, and its development is performed only because it is directly associated with the equipment)
  9. Modification Costs of Existing Equipment (if adding new functionality) Note that a dding new functionality i nvolves something other tha n expandin g on an existing functionality.
  10. Testing Costs to confirm proper assembly only.   Testing to see if an item produces intended results or whether it works in a specific environment is an R&D event and is not allowable.
  11. Travel If travel supports both testing and research, the travel costs must be prorated between the two types of effort .
  12. Modification Costs of Fabricated Equipment only if prior to initial use or deployment for research. Design flaws discovered in the first use or deployment: redesign falls under R&D and is not allowable; fabrication of the changes to the equipment and/or its software are allowable.
  13. Installation Costs if necessary to make sure the fabricated equipment is functioning properly prior to initial use and if directly related to the installation.

Costs that MAY NOT be included in Fabricated Equipment

Unallowable costs in a fabrication include:

  1. Research and Development (R&D). I f the fabricated item has not been built previously and require s design, significant testing and redesign/modification before an actual working item is obtained , the cost s incurred up to the point that there is a proven , approved design are deemed to be R&D and will not be included in the cost of fabrication. R&D costs may be incurred either at the University or by an external vendor providing contractual services including design, testing and modifications. The cost of building the original fabricated asset (i.e., capitalized cost subject to depreciation) should not be significantly different than the cost of building subsequent assets.
  2. Cannibalized parts (parts removed from an existing asset that has already been recorded, capitalized, and fully depreciated)
  3. Maintenance contracts other than for first year or if not in place at the time the asset is initially put into use .
  4. Modification Costs of existing Equipment if not adding substantial new functionality
  5. Modification Costs of Fabricated Equipment if after initial use or deployment for research 
  6. Repairs and Maintenance
  7. Replacement parts
  8. Replacement supplies (e.g. batteries)
  9. Spare Parts
  10. Supplies (that do not become an actual part of the item, e.g. books, tools, paper towels, test equipment, etc.)
  11. Testing (if data gathered is to be used in research)
  12. Travel (if it supports research or the R&D phase or is made to discuss design issues)
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