13 Setting Up Overhead Rules (Release 9.2 Update)

This chapter discusses:

13.1 Understanding Overhead Rules for Joint Venture Management

You use the Overhead Rules program (P09J50) to create overhead rules, and their associated overhead methods. Each method has effective start and end dates for calculating the overhead amount. The system provides six overhead methods to use: Fixed Amount, Fixed Amount with Escalations, Fixed Percent, Fixed Percent with Sliding Scale, Day Rate, and User Defined Method. Each method can have a specific account that is used to create the overhead journal entry.

You can create multiple methods within a rule. You can also create multiple overhead rules depending on the joint venture requirement. You can then choose which rule to assign at the business unit, project, joint venture, or joint ventures company level to process the correct rules for the business unit. You can also assign multiple rules at any level in the hierarchy.

Overhead method records are stored in these tables:

  • Overhead Rules Header (F09J50)

  • Overhead Rules Detail-Methods (F09J51)

  • Overhead Fixed Amount and Day Rate Method-Details (F09J52)

  • Overhead Sliding Scale Method Details (F09J55)

13.1.1 Prerequisites

Before you complete the tasks in this section:

  • Set up currency code processing option in the Overhead Rules program.

  • Set up escalation indices in the Escalation Index program (P09J60) to use the Fixed Amount with Escalations method.

  • Set up account groups in the Account Groups program (P09J53) to use the Fixed Percent and Fixed Percent with Sliding Scale methods.

13.2 Creating an Overhead Rule

To create an overhead rule:

  1. From the Joint Venture Management module (G09J), click Joint Venture Setup, and then Overhead Rules.

  2. On the Work with Overhead Rules form, click Add.

  3. On the Create Overhead Rule form, complete the required Overhead Rule field.

  4. Optionally, enter a description for your overhead rule.

    You can also enter category codes for your rule by clicking the Category Codes collapsible form.

  5. Click Save to save your overhead rule.

    The system displays the Edit Overhead Rule form.

  6. In the header section of the Edit Overhead Rule form, optionally update the description for the overhead rule.

  7. On the Overhead Rule Category Codes collapsible form, enter the category codes for your rule.

    You can enter the category code for your rule either on the Create Overhead Rule form or on the Edit Overhead Rule form.

  8. Complete these required fields, and then click OK:

    • Overhead Method

      Specify the overhead method that the system uses to calculate the overhead. Values for this are:

      Day Rate

      Fixed Amount

      Fixed Amount with Escalations

      Fixed Percent

      Fixed Percent - Sliding Scale

      User Defined Method

      The system displays the respective subforms for the method that you choose to calculate overhead.

    • Currency Code

      The system automatically defaults the currency code based on the processing option specified in the P09J50 program. You can update the currency code, if required.

      This is the currency code for the amount (base amount, minimum amount, day rate, and so on) that is specified in each overhead method.

  9. Optionally, complete these fields:

    • Effective From

      Enter the date from when the overhead record becomes active. This is the effective beginning date for the overhead method.

      Note:

      By default, the system displays today's date. You can override this date.
    • Effective Through

      Enter the date from when the respective method will no longer be considered when overhead calculations are performed.

    • Overhead Method Purpose

      Enter the purpose for the overhead method.

    • Inactive

      An option that indicates whether the overhead method is active.

      If you select this option, the system will not consider this method when calculating overhead.

    • Overhead Method Category Codes 1 through 10

      You can enter the category codes for the overhead methods that you choose.

    • Optionally, specify the account that will be used when the journal entry is created for the overhead amount:

      • Overhead Business Unit

        Enter a value that specifies the business unit.

        If Overhead Business Unit is specified, you must also specify an Overhead Object Account. If both are blank, the value in the JVOHE AAI is used.

      • Overhead Object Account

        Enter a value for an object account.

        If a business unit is not specified, then the system will use the business unit for which overhead is calculated to get an account, which is used when the journal entry is created. If all three fields are blank, then the value in the JVOHE AAI is used.

      • Overhead Subsidiary

        Enter a value to specify a subsidiary (this is optional).

13.2.1 Entering Information for Calculating Overhead Using the Day Rate Method

When you select the day rate method in the Overhead Method drop-down menu, the system displays the Day Rate subform.

To enter information for the day rate method:

  1. Complete the required Default Day Rate field.

    Enter the default day rate that the system uses to calculate the overhead for all operational statuses of the Joint Venture or Business Unit.

    If you want to specify an operational status that needs to have a different day rate than the one specified as the default rate, then enter these operational statuses under the Exception Operational Status with the specific amounts.

  2. On the Exception Operational Status By section of the subform, select either the joint venture or the business unit option. By default, the joint venture option is selected.

  3. Optionally you can complete these fields:

    • Operational Status

      Select the operational status from the Operational Status drop-down list.

    • Day Rate

      Enter a day rate to calculate the overhead at the specified operational status.

13.2.2 Entering Information for Calculating Overhead Using the Fixed Amount Method

When you select the Fixed Amount method in the Overhead Method drop-down menu, the system displays the Fixed Amount subform.

To enter information for the fixed amount method:

  1. Complete the required Base Amount field.

    Enter the base amount that the system uses to calculate the overhead.

    This amount will be calculated as overhead for all the operational statuses of the joint venture or business unit.

  2. On the Exception Operational Status By section of the subform, select either the joint venture or the business unit option. By default, the joint venture option is selected.

  3. Optionally you can complete these fields:

    • Operational Status

      Select an operational status from the Operational Status drop-down list.

    • Chargeable Months

      Enter the number of months for which overhead is charged in the Chargeable Months field.

      Chargeable months are the number of months for which overhead is charged when the joint venture or business unit is at the specified operational status.

      If you do not want to calculate overhead for a particular operational status, then you need to add that operational status as an exception status with chargeable months as zero.

13.2.3 Entering Information for Calculating Overhead Using the Fixed Amount with Escalations

When you select the Fixed Amount with Escalations method in the Overhead Method drop-down menu, the system displays the Fixed Amount with Escalations subform.

To enter information for the fixed amount with Escalations method:

  1. Complete the required fields:

    • Base Amount

      Enter the base amount that the system uses to calculate the overhead.

      This amount will be calculated as overhead for all the operational statuses of the joint venture or business unit.

    • Base Year

      Enter the base year that is specified in the joint venture agreement. You must enter the values in format YYYY.

    • Base Month

      Enter a month in a calendar year that is specified in the joint venture agreement.

      Note:

      In the case of acquired business units that have existing overhead agreements to maintain, the base year, base month, and base amount should be based on the acquired month, year, and escalated amount for the acquired month.
    • Escalation Index

      Enter a value that specifies which escalation index to use. The values used in this field must be available in the Escalation Index table (F09J60).

  2. On the Exception Operational Status By section of the subform, select either the joint venture or the business unit option. By default, the joint venture option is selected.

  3. Optionally you can complete these fields:

    • Operational Status

      Select an operational status from the Operational Status drop-down list.

    • Chargeable Months

      Enter the number of months for which overhead is charged in the Chargeable Months field.

      Chargeable months are the number of months for which overhead is charged when the joint venture or business unit is at the specified operational status.

      If you do not want to calculate overhead for a particular operational status, then you need to add that operational status as an exception status with chargeable months as zero.

13.2.4 Entering Information for Calculating Overhead Using the Fixed Percent Method

When you select the Fixed Percent method in the Overhead Method drop-down menu, the system displays the Fixed Percent subform.

To enter information for the Fixed Percent method:

  1. Complete the required fields:

    • Fixed Percent field

      The fixed percent is the percentage that is used when calculating the overhead.

    • Basis

      Select a basis from the overhead basis drop-down list to specify the basis to use when calculating overhead. Values for this field are:

      • Inception-To-Month

      • Month

      • Year-To-Month

      These values are stored in UDC table (09J/BA).

      In the case of acquired business units that have existing overhead agreements, ensure that the inception-to-month for the business unit is entered as the acquisition date in the Business Unit Attributes program (P09J0006). Based on the values specified, the system selects the correct journal entries for the indirect costs for calculating overhead.

  2. Optionally, complete the following fields:

    • Account or Account Group

      If you select the Account option, enter the account number in the Business Unit/Object/Subsidiary fields.

      If you select the Account Group option, enter the account group name in the Account Group Name field.

    • Minimum Overhead Charge

      Enter the minimum overhead chargeable amount for the month that the system uses when you calculate the overhead.

      For example, consider that the overhead amount calculated for a month is 400 USD, but the minimum overhead charge specified in this field is 500 USD. If the overhead amount calculated is less than the minimum overhead chargeable amount that must be charged, the system charges 500 USD as the overhead amount.

13.2.5 Entering Information for Calculating Overhead Using the Fixed Percent with Sliding Scale Method

When you select the Fixed Percent with Sliding Scale method in the Overhead Method drop-down menu, the system displays the Fixed Percent with Sliding Scale subform.

To enter information for the Fixed Percent with Sliding Scale method:

  1. Complete the following fields:

    • Basis

      Select a basis from the overhead basis drop-down list to specify the basis to use when calculating overhead. Values for this field are:

      • Inception-To-Month

      • Month

      • Year-To-Month

      These values are stored in UDC table (09J/BA).

      In the case of acquired business units that have existing overhead agreements, ensure that the inception-to-month for the business unit is entered as the acquisition date in the Business Unit Attributes program (P09J0006). Based on the values specified, the system selects the correct journal entries for the indirect costs for calculating overhead.

    • Account or Account Group

      If you select the Account option, enter the account number in the Business Unit/Object/Subsidiary fields.

      If you select the Account Group option, enter the account group name in the Account Group Name field.

    • Minimum Overhead Charge

      Enter the minimum overhead chargeable amount for the month that the system uses when you calculate the overhead.

      For example, consider that the overhead amount calculated for a month is 400 USD, but the minimum amount specified in this field is 500 USD. If the overhead amount calculated is less than the minimum overhead charge amount that must be charged, the system charges 500 USD as the overhead amount.

    • Lower Limit

      Enter an amount that specifies the lowest limit in the amount range.

      Note:

      The lower limit must be blank for the beginning range of the sliding scale.
    • Upper Limit

      Enter the amount that specifies the maximum amount in the amount range.

      Note:

      The upper limit must be blank for the ending range of the sliding scale.

      Note:

      While calculating overhead, you must adjust the lower and upper limits for the sliding scale ranges in order to consider the overhead that is already charged against the business unit prior to the acquisition.
    • Fixed Percent

      Enter a percent that is used to calculate the overhead when the gross amount is within the associated sliding scale amount range.

13.2.6 Entering Information for Calculating Overhead Using the User Defined Method

There are five delivered overhead methods to calculate overhead. Other than these five methods, you also have the option to create your own method for calculating overhead.

To create your own method, you can use the User Defined Method available in the P09J50 program. Using the User Defined Method, you can select the custom business function that performs the calculation, and attach it to the User Defined Method. There can be more than one User Defined Method in a rule.

On the User Defined Method subform, you can specify the Business Function Name. The system executes the logic associated with the function to calculate the overhead.

Note:

You must use the UDC code 06 that is stored in the UDC table (09J/OM) to create the User Defined Method.

See: Appendix C, "Implementing a User Defined Method to Calculate Overhead for a Joint Venture (Release 9.2 Update)" For more information about how to create business functions.

13.3 Copying an Overhead Method within an Overhead Rule (Release 9.2 Update)

You can copy an overhead method within an overhead rule using the Overhead Rules program (P09J50).

To copy a method in an overhead rule:

  1. From the Joint Venture Management module (G09J), click Joint Venture Setup, and then Overhead Rules (P09J50).

  2. On the Work with Overhead Rules form, search and select the overhead rule in which you want to copy a method and then click OK.

  3. On the Edit Overhead Rule form, select the overhead method that you want to copy and then click Copy Method on the Row menu.

    The system creates a copy of the selected overhead method and displays it right below the overhead method from which it was copied.

  4. For the newly added method, update the following fields as needed. The system does not copy the following attributes of the overhead method:

    • Effective From

      By default., the system displays today's date.

    • Effective Through

    • Inactive

  5. Select the newly added overhead method in the list. The system displays the subform of the selected method. Update the information in the subform as needed.

  6. Click OK to save your changes.