Example of Overhead Absorption for Purchase Order Receipt
This is an example of overhead absorption for the purchase order receipt of a standard costed item.
Let's consider a purchase order for a standard costed item. The purchase price is $150 and quantity is 1. The standard cost details for the item are shown in this table.
Cost Element |
Standard Cost |
---|---|
Material |
$100.00 |
Overhead |
$20.00 |
The accounting distributions for the purchase order receipt with overhead absorption enabled are listed in this table.
Accounting Line Type |
Cost Element |
Debit |
Credit |
---|---|---|---|
Inventory |
Material |
$100.00 |
|
Purchase Price Variance |
Material |
$50.00 |
|
Receiving Inspection |
Material |
$150.00 |
|
Inventory |
Overhead |
$20.00 |
|
Overhead Absorption |
Overhead |
$20.00 |
However, if you've set the transaction type to not absorb the overhead, then the accounting distributions created are listed in this table.
Accounting Line Type |
Cost Element |
Debit |
Credit |
---|---|---|---|
Inventory |
Material |
$100.00 |
|
Purchase Price Variance |
Material |
$50.00 |
|
Receiving Inspection |
Material |
$150.00 |
|
Inventory |
Overhead |
$20.00 |
|
Purchase Price Variance |
Overhead |
$20.00 |