Fixed Amount with Escalation Method

A fixed overhead amount can be escalated regularly according to an index specified in the joint operating agreement. The escalated fixed amount can be the standard escalation index set up by the COPAS (Council of Petroleum Accountants Societies) in the United States, the PASC (Petroleum Accountants Society of Canada) in Canada, or an agreed-upon index set up for the joint venture.

You calculate the overhead based on the base amount, base year, base month, and escalation index specified in the method. The amount will not be escalated for the base month and the base year. The calculation depends on the effective dates of the operational statuses of the joint venture or the business unit during the calculation month that is specified in the R09J408 processing option. The operational statuses of the joint venture or business units can change multiple times in the calculation month. Therefore, all of the operational statuses in that month will be considered while calculating the overhead amount. If there are exceptions, the operational status can be specified as an exception operational status for that method. The chargeable month must be specified for the exception operational status to be effective. If the joint venture or business unit operational status is specified in the exception operational status for that method, overhead is charged only for the number of chargeable months specified in that method. If you do not want to use an operational status in overhead calculation, you must set up that operational status as an exception operational status with the chargeable months as zero.

Consider the following example for a joint venture:

In the above example, Escalation Index for CPI has the following setup: January 10%, February 10%, March 6%, April 0%, and May 8%.

Base Amount = 1000 USD

In this case, the calculation will be:

• January = 1000 USD

  Even if the escalation index for January is 10%, the system will not escalate for January as it is the base month.

• February = 1100 USD

  1000+10% of the base amount is 100; 1000+100=1100

• March = 1320 USD

  1100+20% of the base amount 1100 is 220; 1100+220=1320

• April = 1320 USD

  Because the escalation index in not specified for April, the system considers the overhead amount from the previous month.

• May = 1425.6 USD

  1320 + 8% of 1320 is 105.6; 1320+105.6=1425.6