Managing Overhead Rates

You can define plant overheads and work center overheads. When defining work center overheads, you can specify the resource type as equipment or labor.

Plant overheads, such as lighting and cooling, can be absorbed on the basis of the material cost. They can be of a fixed or percentage value, with different absorption types available. Work center overheads, such as security, are absorbed by the finished goods on the basis of a fixed rate or a percentage of resource cost incurred in the work center.

You can use any combination of resource rates and overhead rates to absorb factory costs into the work in process and finished goods inventory value. When you use overhead rates to absorb factory expenses, you can define rates as a percentage of material or hourly work center rates.

Overhead absorption rates are date-effective, enabling you to set different absorption rates for each quarter. You can have one or many rates at different levels, such as at inventory organization, item category, or item level. Each level absorbs a share of the pool of expenses. These rates are used in cost roll up of an item and are published with the rolled-up item cost. All the indirect costs modeled as overhead are absorbed by work in process product completion when Cost Accounting uses the standard costs to process work execution transactions.

Note: Overhead rates will be applied only if the finished product is rolled up.