Overhead costing is the means by which you allocate overhead costs to the appropriate objects by applying a percentage or quantity-based fixed amount to a specified cost base. The basis for overhead application are those primary cost elements that were posted directly to the order. In the manufacturing industry, for example, these are usually the labor and material costs.
You can apply overhead to both planned and actual costs or on the basis of commitment data.
For testing and forecasting purposes you can also simulate the calculation. In this case, the data is not updated in the database. The results of the calculation are displayed as statistics and any errors are recorded in an error log. You can print out both the statistics and the error log.
The rules for applying overhead are gathered in the overhead costing sheet.
The overhead costing sheet combines three central elements which determine how overhead is calculated.
The calculation base specifies the cost element base to which overhead is applied, such as the materials cost elements. You can further restrict the base by identifying the origin of the cost elements. The origin field subdivides the cost element by material.
The overhead amount allows you to define the amount of overhead to be applied as follows:
In the percentage overhead approach, you identify base cost elements. A percentage is applied to the costs posted to these cost elements. The calculated cost is added as overhead.
In the quantity-based overhead approach, you specify the amount of overhead cost to be applied per quantity unit posted to the calculation base cost elements. In this case, units of measure must be recorded in Management Accounting.
The dependency allows you to differentiate overhead rates or amounts by plant, company code, profit center, responsible cost center, order type, or other criteria.
The overhead type determines whether the overhead calculation is for actual, plan, or commitment data.
The credit key defines which object (cost center or internal order) is credited to offset the debit to your overhead order. You also specify which cost element should be used to post the overheads.
Overhead orders can be receivers of cost center activity allocations. In an activity allocation, the activity quantity is entered in the transaction and evaluated using the plan price or a manual actual price.
Revaluation allows you to revaluate activity allocations based on an automatically generated calculation of actual price. Unlike cost center accounting, this runs in a separate transaction.
Using Activity Based Costing (CO-OM-ABC), you can allocate costs from business processes to overhead orders. The allocation is defined by a process template developed in Activity Based Costing.
Primary postings (such as telephone costs) are collected on a clearing cost center or an order to minimize the number of postings in Financial Accounting. These costs are allocated to the appropriate objects in Management Accounting (such as an internal order) at period-end closing, according to a user-defined key.
Periodic allocations can be reversed and repeated as often as desired.