Items or elements of an institution's costs that are reimburseable under a payment formula. Allowable costs may exclude, for example, uncovered services, luxury accommodations, costs that are not reasonable and expenditures that are unnecessary.
Those costs that may be paid under a contract. Samples of unallowable costs under a contract could be subscriptions and memberships, entertainment and so on. Allowable costs can include salaries and benefits, severance pay and more as allowed by contract and by law. For examples about cost principles for nonprofit organizations see the chart from the state of Texas at http://www.tea.state.tx.us/grant/handbook/costprin.html
Costs specified in OMB Circular A-21 that can be directly charged to Federal grants and contracts or included in facilities & administrative rates.