Standard Cost Overhead Absorption Rules
You can define an item standard cost to include overhead cost elements. The overhead costs are absorbed and accounted for against all receipt transaction types by default.
However, you can define which transaction groups and transaction types must absorb the overhead for standard costed items. This lets you to account for overhead absorption for specific transactions, such as purchase order receipt, while not absorbing overheads for other transactions, such as miscellaneous receipts or subinventory transfers.
By defining the standard cost overhead accounting rules, you can minimize over-absorption by specifying the types of transactions that don't require overhead absorption. For example, absorbing freight overhead may not be required for miscellaneous receipts or subinventory transfers if the overheads are already absorbed on a purchase order receipt. This eliminates the manual creation of journal entries to correct the excess absorption and, also, simplifies your accounting setup in Subledger Accounting.
In the Cost Accounting work area, select the Standard Cost Overhead Absorption Rules tab on the Manage Accounting Overhead Rules page to define whether the overheads must be absorbed for standard costed items by a transaction group and transaction type. Click the Add Row button and set the parameter values.
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Transaction Group (mandatory) and Transaction Type (optional). The transaction groups are predefined and they include one or more transaction types. You can define overhead rules at the transaction group level or at the transaction type level. The transaction group controls the transaction type options, which are more granular. If the transaction type isn't provided, then the overhead absorption occurs for all transaction types within the transaction group.
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Absorb Overheads (mandatory). Options are Yes and No.
Tips and Considerations
Make a note of the tips and considerations listed here:
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You can change the value of Absorb Overheads. However, the changes will only apply to future transactions.
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Overhead absorption rule defined at the lowest level takes precedence. For example, you define a rule at the transaction group level for Inventory transactions with Absorb Overheads set to No. You also define a rule at transaction type level for Miscellaneous Receipt, which belongs to the transaction group Inventory transactions, with Absorb Overheads set to Yes. In this scenario, all transaction types belonging to the Inventory transactions group, except Miscellaneous Receipt, won't absorb overheads. This lets you to define overhead absorption rules with exceptions.
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RMA receipt transactions don't absorb overhead costs and isn't available for setup on the Standard Cost Overhead Absorption Rules tab.
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Return transactions for purchase orders and transfer orders derive the overhead absorption setting from the corresponding receipt transactions.
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Adjustment transactions use the same overhead absorption setting as the original transaction.
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Absorbing overhead costs for work order product completion and work order product return transactions for standard cost method items are set up in the Manage Overhead Rates page.
Transaction Groups and Transaction Types
You can define the standard cost overhead absorption rules only for the applicable transaction groups and transaction types listed in the table. The table also lists the accounting line type if Absorb Overheads is set to No for a transaction group or transaction type. If Absorb Overhead is set to Yes, the default behavior, then the accounting line type is Overhead Absorption.
|
Transaction Group |
Transaction Type |
Accounting Line Type |
|---|---|---|
|
Interorganization transfers |
Direct Organization Transfer |
Transfer Price Variance |
|
Interorganization transfers |
In Transit Receipt |
Transfer Price Variance |
|
Interorganization transfers |
Transfer Order Interorganization Receipt |
Transfer Price Variance |
|
Interorganization transfers |
Transfer Order Interorganization Transfer |
Transfer Price Variance |
|
Interorganization transfers |
Transfer Order Return Receipt |
Transfer Price Variance |
|
Interorganization transfers |
Transfer Order Return Transfer |
Transfer Price Variance |
|
Intraorganization transfers |
Cycle Count Transfer |
Offset |
|
Intraorganization transfers |
Inventory Lot Merge |
Offset |
|
Intraorganization transfers |
Inventory Lot Split |
Offset |
|
Intraorganization transfers |
Inventory Lot Translate |
Offset |
|
Intraorganization transfers |
Movement Request Transfer |
Offset |
|
Intraorganization transfers |
Physical Inventory Transfer |
Offset |
|
Intraorganization transfers |
Project Transfer |
Offset |
|
Intraorganization transfers |
Sales Order Pick |
Offset |
|
Intraorganization transfers |
Subinventory Transfer |
Offset |
|
Intraorganization transfers |
Transfer Order Intraorganization Receipt |
Offset |
|
Intraorganization transfers |
Transfer Order Pick |
Offset |
|
Intraorganization transfers |
Transfer Order Return Pick |
Offset |
|
Intraorganization transfers |
Transfer to Owned |
Offset |
|
Intraorganization transfers |
Work in Process Pick |
Offset |
|
Inventory transactions |
Account Alias Receipt |
Offset |
|
Inventory transactions |
Account Receipt |
Offset |
|
Inventory transactions |
Cycle Count Adjustment |
Offset |
|
Inventory transactions |
Miscellaneous Receipt |
Offset |
|
Inventory transactions |
Physical Inventory Adjustment |
Offset |
|
Purchase order transactions |
Purchase Order Receipt |
Purchase Price Variance |
|
Purchase order transactions |
Purchase Order Receipt Into Work Order |
Purchase Price Variance |
|
Trade costing events |
Trade In Transit Receipt (Global Procurement) |
Purchase Price Variance or Transfer Price Variance |
|
Trade costing events |
Drop Ship Delivery (Simple Procurement Customer Drop Ship) |
Purchase Price Variance |