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