Overhead
You can use material overhead and overhead cost subelements to add indirect costs to item costs on either a percentage basis or as a fixed amount in both standard and average costing organizations.
Material Overhead is earned by an item during purchase order receipt, inter-organization receipt, and WIP completion transactions. You can choose to decide if material overhead is to be earned during purchase order receipt, inter-organization transactions, and assembly returns and completions for non-standard costing organizations. You have the flexibility to decide if the transaction is going to earn material overhead, depending on the item type. Overhead, based upon resources/deparment, is earned as the assembly moves through operations in work in process.
Note: If you use Oracle Bills of Materials, you must first define the bill of material parameters to use the overhead cost element in the Overhead window. If the bills of material parameters are not set up, you only have access to material overhead cost element.
Each overhead subelement has a default basis, a default activity, and an absorption account.
The overhead absorption account offsets the corresponding overhead cost pool in the general ledger.
You can base the overhead charge on the number of resource units or percentage of resource value earned in the routing operation. You can also set up move-based overheads where the rate or amount is charged for each item moved in an operation. To do this, use the Item or Lot basis types.
You can base the material overhead charge on a percentage of the total value, which is earned when you receive purchase orders or perform WIP completion transactions. You can also use the Item or Lot basis types. You can apply each of these subelements, using different basis types, for increased flexibility.
Defining overhead
2. Select a cost element:
Material Overhead: Define material overhead.
Overhead: Define resource and move-based overhead. This is only available if Bills of Material is installed.
3. Select an overhead absorption account.
This is the offset account for any cost earned to the inventory or work in process value.
4. Select a default basis type to be used as a default for the overhead being defined. This basis type is used to determine how the overhead cost is earned and how it is applied to product costs.
5. Select a default activity to use for this overhead.
6. Select an expenditure type.
If the Project Cost Collection Enabled parameter in the Organization Parameters window is set, you must associate an expenditure type with each subelement. You can only select expenditure types that belong to the Burden Transactions expenditure class.
7. Optionally, select a date on which to inactivate a material overhead or overhead.
An inactive overhead subelement cannot be used to define an overhead cost (when defining item costs) or associated with a resource (when defining a resource). You can continue to use item costs previously defined for and resources previously associated with the inactive overhead subelement. The cost rollup will continue to
roll up previously defined inactive overhead subelements.
8. Do one of the following:
• To earn overheads and material overheads based on resource units or value, you must associate resources to overhead and material overhead for a specific cost type. Choose the Resources button to open the Resource Overhead Associations window.
• To associate department and overhead combinations with a cost type, choose the Rates button to open the Overhead Rates window. This option is available for overheads only.
Associate resources to overhead for a cost type
This is only necessary for material overhead and overhead subelements with a basis type of Resource Value or Resource Units.
Important: You only apply these overheads when they are associated with a resource.
1. Select a cost type to associate resources to overhead with.
2. Select the resource.
Overhead calcualtion due to Resources
Overhead can be associated with a dept or a resource. When we define an overhead associated with resources we attach differnt resources to it. In the Rates we specify the rate/amount against basis for differnt departments.
In the resorce form we can view all the overheads associated with a particular resource.
When we do an operation - All the overheads (OH due to dept + resources) associated with the dept are charged
All the resources attached to the department operations are charged.
Control overheads by resource.
For overheads based on resource units or resource value, you must specify the resources on which the overhead is based. You can then charge multiple resources in the same department for the same operation, while still earning separate overhead for each resource. If you do not associate your overheads and resources, you do not apply overhead in the cost rollup or charge resource-based overhead in WIP.
Associate department and overhead combinations with a cost type
2. Select a department and enter an overhead rate or amount.
The department will be associated with the overhead being defined in the selected cost type. The specified overhead rate or amount will be used for that department.
Rates and amounts are required for both resource and move (item or lot basis type) overheads.
3. Optionally, select an activity. The default is the activity selected as the default in the Overheads window.
4. Select the basis. The default is the basis selected as the default in the Overheads window.
5. Enter the percentage rate or the fixed amount, as appropriate for the basis. If the basis is resource value, enter a rate in this field. If the basis is resource units, item, or lot, enter an amount in this field.
6. Save your work
How to remove frozen Cost from Overhead
The best possible solution for this Ct. in order to delete overhead associations (resource based and department based) in the frozen cost type is to set the value as 0 in the user defined cost type and run standard cost update. The std cost update process will automatically delete the row from frozen, if it finds that the value has changed from a non-zero to a zero value.