An allowable cost is an expense that meets specific criteria set by a contract, grant, or regulation and can therefore be charged to the customer or funding agency.
These costs must be necessary, reasonable, and directly related to the performance of the contract or project. Examples can include materials, travel, and certain administrative costs.
To be considered allowable, the cost must be incurred during the contract period, comply with applicable laws and accounting standards, and be properly documented.
Unallowable costs such as fines, penalties, or entertainment cannot be billed to the customer. In government contracts, allowable costs are usually defined by regulations.