Fixed Percent with Sliding Scale Method
As the Joint Venture indirect costs increase, the percentage to be applied as overhead may change. In this case, use the Fixed Percent with Sliding Scale method to calculate overhead. The fixed percentage of overhead amounts to be charged and the amount ranges are specified in the joint operating agreement. For example, you can charge 3% up to a cost of 50,000 USD; 2% from 50,001 USD and up to 100,000 USD; and 1% for 100,001 USD and above.
In this method, the general ledger transaction based on the month, year-to-month, or inception-to-month basis specified in the method for a joint venture or business unit, until the calculation month specified in the processing options in the Overhead Calculation program (R09J408) is retrieved based on the general ledger date and it is summed up. Then the percentage specified on the sliding scale range is applied to calculate the overhead amount. After the percentage is applied on the defined sliding scale ranges, the system compares the calculated amount with the minimum overhead chargeable amount. If the calculated amount is lesser than the minimum overhead chargeable amount, then the system considers the minimum amount for overhead calculation.
Consider the following example for a joint venture:
In the above example, the Basis to calculate the overhead = Month, and the Sliding Scale setup has the following ranges:
Upto 1000 USD = 20%
1001 to 2000 USD = 10%
2001 USD onwards = 5%
The sum of the accumulated transactions for the calculation month = 5000 USD
In this case, the overhead calculation will be:
For the first 1000 USD of the 5000 USD, 20% will apply = 200 USD
For the next 1000 USD of the 5000 USD, 10% will apply = 100 USD
For the remaining 3000 USD, 5% will apply = 150 USD
The total overhead amount = 200+100+150 = 450 USD
If the accumulated transaction amount is 1500 USD, the total overhead amount calculated using the same sliding scale setup will be 200+50 = 250 USD. Because 250 USD is lower than the Minimum Overhead Charge of 300 USD, 300 USD will be charged as the overhead.
