Example of Using a Percentage of Cost Overhead Method with a Sliding Scale
In this example, a managing partner needs to set up an overhead method to calculate overhead based on the terms stipulated in the joint operating agreement, which states:
- Use rent and utilities costs as the basis for the overhead calculation.
- For each period, distribute overhead costs to joint venture partners with a minimum amount of $5,000.
- For the calculation, use the following breakdown of threshold amounts and percentages to calculate the overhead amount:
| Threshold Amount | Percentage | Calculation |
|---|---|---|
| $10,000 | 7 | Multiply first $10,000 portion of the total cost by 7%. |
| $50,000 | 6 | Multiply the portion of the cost that is greater than $10,000 and up to $50,000 by 6%. |
| $9,999,999 | 5 | Multiply portion of the cost that is greater than $50,000 and up to
$9,999,999 by 5%. *Any portion of the cost over $9,999,999 is not used to calculate overhead. |
When setting up the overhead method for the joint venture, the managing partner added the preceding threshold amounts and percentages to a sliding scale. The managing partner also specified the following details:
- Effective dates for the overhead method.
- An account set that was set up to identify accounts for recording rent and utilities.
- The ownership definition to use for the distribution of the calculated overhead amount.
- $5,000 as the minimum overhead amount.
- A period designation so that the overhead calculation is based only on transactions for the period selected by the user when submitting the process to calculate overhead.
The managing partner ran the process to calculate overhead for the most recent period. The following table shows the details of the transactions that the process identified for the overhead calculation:
| Account | General Ledger Date | Amount | Details |
|---|---|---|---|
| 10.5000.535011.000 | 3/4/2021 | $ 12,500.00 | Facilities - Rent Corp Bldg 1 |
| 10.5000.535021.000 | 3/4/2021 | $ 12,500.00 | Facilities - Rent Corp Bldg 2 |
| 10.5000.535031.000 | 3/4/2021 | $ 14,500.00 | Facilities - Rent Corp Bldg 3 |
| 10.5000.535051.000 | 3/4/2021 | $ 13,000.00 | Facilities - Rent Corp Bldg 5 |
| 10.5000.535081.000 | 3/4/2021 | $ 11,300.00 | Facilities - Rent Corp Bldg 8 |
| 10.5000.535091.000 | 3/4/2021 | $ 11,000.00 | Facilities - Rent Corp Bldg 9 |
| 10.5000.535502.000 | 3/4/2021 | $ 5,600.00 | Facilities - Rent Aurora Bldg 2 |
| 10.5000.539701.000 | 3/5/2021 | $ 7,500.00 | Facilities - Rent Westminster Bldg 1 |
| 10.5000.539799.000 | 3/6/2021 | $ 10,750.00 | Facilities - Rent Denver Bldg 9 |
| 10.5000.535212.000 | 3/13/2021 | $ 5,679.00 | Facilities Utilities - Electric |
| 10.5000.539301.000 | 3/14/2021 | $ 4,532.00 | Facilities - Utilities - Gas |
| 10.5000.539311.000 | 3/15/2021 | $ 2,587.00 | Facilities Utilities - Water |
| 10.5000.539399.000 | 3/16/2021 | $ 1,099.00 | Facilities Utilities - Waste |
| Threshold Amount | Percentage | Calculation |
|---|---|---|
| $10,000 | 7 | 10,0000 x 7% = 700 |
| $50,000 | 6 | 40,000 x 6% = 2400 |
|
$9,999,999 |
5 |
62,547 x 5% = 3127.36 Overhead Total = $6,277.35 |
Because the total overhead amount is above the $5,000 minimum, the process creates a transaction with the amount, which is viewable in the Joint Venture Source Transactions work area. This transaction can then be processed by Oracle Joint Venture Management to recoup the overhead amount from the joint venture partners.