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Relationship between “cost portion” in BASE and “fixed percentage” in CREDIT KEY and their effects on OVERHEAD calculations

Hi All…

It is my first document posted into SCN, so obviously I do expect lots of feedback. I call it as an adventure since I am about to teach FISH swimming.

This is a small analysis made in order to know the relationship between “COST PORTION” in Base and “FIXED PERCENTAGE” in Credit Key that we configure for costing sheet and the effects of this relationship on overhead calculations.

Though no client asked me regarding this or even I got no requirement like this, I have gone further to study better. Please take time to understand as I am not perfect at drafting.

In this documentation I have considered different combination of cost portions in BASE and fixed % in credit key as different scenarios and to see the effects I have also taken cost component view to show variable cost values which are not shown in itemization default (to see we need to change the layout).

Observe cost portion of BASE settings:

/wp-content/uploads/2013/12/4_4_344575.jpg

Observe fixed % in credit key settings:

/wp-content/uploads/2013/12/4_6_344576.jpg

Observe the costing sheet:

/wp-content/uploads/2013/12/4_3_344577.jpg

ACTIVITY PRICES:

  Observe that we have given differently the fixed and variable prices for the activity types, so that we can have different base amounts (for Total, Fixed and Variable) for better understanding.

/wp-content/uploads/2013/12/3_3_344389.jpg


NOTE: Here the analysis is only made for Admin OHs i.e. 7th item no (please do not consider material OHs i.e. 6th item no)


SCENARIO 1 (A): WHEN TOTAL IS CONSIDERED AS COST PORTION IN THE BASE AND FIXED PORTION AS * IN CREDIT KEY

IN ITEMIZATION VIEW:

/wp-content/uploads/2013/12/3_4_344411.jpg

In this case, system has calculated total OH as 1822.50 on base amount i.e. total conversion cost amount (12150) as we have mentioned 15% OH rate in the costing sheet, same way we see fixed OH also calculated as 1215 on base amount (fixed nature i.e. 8100) and considered 15% as OH rate.

IN COST COMPONENT VIEW:

/wp-content/uploads/2013/12/3_5_344412.jpg

In the cost component view we see variable OH calculated as 607.50 on base amount i.e. 4050 on the basis of 15% OH rate mentioned in the costing sheet.

SCENARIO 1 (B): WHEN TOTAL IS CONSIDERED AS COST PORTION IN THE BASE AND FIXED PORTION AS 60% IN CREDIT KEY

IN ITEMIZATION VIEW:

/wp-content/uploads/2013/12/3_6_344413.jpg

In this case we see total OH has been calculated based on the BASE amount i.e. 12150 and OH rate i.e. 15%, but fixed OH have been calculated as 1093.50 based on the fixed % portion (i.e. 60%) we mentioned in the credit key, not on the basis of OH rate (i.e. 15%) and fixed BASE amount (8100)

IN COST COMPONENT VIEW:

/wp-content/uploads/2013/12/3_7_344417.jpg

Like FOH, variable OH are also calculated as 729 based on the 40% (left out % after Fixed % i.e. 60%) and not on the basis of variable BASE amount i.e. 4050 and OH rate i.e. 15%

SCENARIO 2 (A): WHEN VARIABLE PORTION IS CONSIDERED IN THE BASE AND FIXED PORTION AS * IN CREDIT KEY

ITEMIZATION VIEW:

/wp-content/uploads/2013/12/5_344418.jpg

Here, we observe the Total OH are calculated as 607.5 based on variable conversion cost only (base amount) i.e. 4050 (which we can see in the next screen shot) using 15% as OH rate and not on the total conversion cost i.e. 12150 and we observe there is no FOH calculated as the base is variable cost

COST COMPONENT VIEW:

/wp-content/uploads/2013/12/5_2_344419.jpg

In this we see the total OH is from variable portion only and no FOH has been calculated and system has considered total OH as variable OH only

SCENARIO 2 (B): WHEN VARIABLE PORTION IS CONSIDERED IN THE BASE AND FIXED PORTION AS 60% IN CREDIT KEY

ITEMIZATION VIEW:

/wp-content/uploads/2013/12/5_3_344426.jpg

Here, we observe total OH are calculated as 607.50 based on variable conversion cost base i.e. 4050 and fixed OH are calculated as 364.50 on total OH using 60% as the fixed portion that we mentioned as fixed portion in the credit.

COST COMPONENT VIEW:

/wp-content/uploads/2013/12/5_4_344427.jpg

We see the VOH cost as 243 calculated from the left out part of the FOH from the total OH cost (i.e. it has been calculated with 40% on total OH cost i.e. 607.50)

SCENARIO 3 (A): WHEN FIXED PORTION IS CONSIDERED IN THE BASE AND FIXED PORTION AS * IN CREDIT KEY

ITEMIZATION VIEW:

/wp-content/uploads/2013/12/5_5_344428.jpg

Here we see the total OH are calculated as 1215 considering fixed value of the conversion cost only i.e. 8100 with 15% as OH rate and system has ignored total conversion cost i.e. 12150 and we see the total OH as FOH as we have given * in the fixed portion of credit key

COST COMPONENT VIEW:

/wp-content/uploads/2013/12/6_344441.jpg

As the fixed portion is considered in the base for calculation of total OH and out of this, total % we want to see as fixed (by giving * in the credit key fixed portion), so we don’t see any VOH calculated in this case

SCENARIO 3 (B): WHEN FIXED PORTION IS CONSIDERED IN THE BASE AND FIXED PORTION AS 60% IN CREDIT KEY

ITEMIZATION VIEW:

/wp-content/uploads/2013/12/6_2_344442.jpg

Here we see the total OH are calculated as 1215 considering fixed value of the conversion cost only i.e. 8100 and system has ignored total conversion cost i.e. 12150 and we see the FOH as 729 as we have given 60% in the fixed portion of credit key (that means out of total OH, system has considered as 729 as fixed)

COST COMPONENT VIEW:

/wp-content/uploads/2013/12/6_3_344443.jpg

Out of total OH, 60% is fixed, that means remaining is variable, so system has calculated 486 (40% on total OH) as VOH


/wp-content/uploads/2013/12/7_344453.jpg



Regards….

Jose

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