Uniform Guidance defines the factors affecting allowability of costs.  Under these principles costs must be:

• 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 particular sponsored agreement and in compliance with the federal cost principles and methods.
  A cost is allocable to a sponsored project if (1) it is incurred solely to advance the work under the sponsored agreement; and (2) it benefits both the sponsored project and other work of the institution, in proportions that can be approximated through use of reasonable methods.
  Any costs allocable to activities sponsored by industry, foreign governments or other sponsors may not be shifted to federally-sponsored agreements.
• Given Consistent Treatment throughout the institution.
• Compliant with any limitations or exclusions set forth in applicable federal regulations and the particular sponsored agreement’s terms and conditions.
• Cost principles apply to costs charged to awards regardless of the source of funds. 

Unallowable costs are cost that cannot be paid by a contract or grant.  These costs are usually prohibited by the Uniform Guidance or may be considered unallowable as a result of UMB’s policies or mutual agreement with sponsors.

Subpart E of the Uniform Guidance provides a detailed listing of items that are typically unallowable.

Uniform Guidance CFR2, Part 200, Subpart E - Cost Principles

Cost Principles costs on all projects must be reasonable, allocable, allowable and consistently treated.