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Overhead Actualization

Former Member
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Dear Members,

If the overheads are applied to an order based on the activities performed and from the overheads secondary cost elements of costing sheet, and those are later not actualized from the expense posted in FI module, will it double charge the expenses in GL And on product Cost?

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Answers (1)

Answers (1)

Former Member
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What I am interested in identifying is , On the confirmation of the order there will be overheads charged to the order based on the activities utilization and the overheads charged from costing sheet, These overheads needs to be revalued on the period end to update the prices and the standard overheads will be replaced by actual costs coming from FI module and the difference will be placed in Variances.

The question here is if the prices are not updated i.e no allocation cycle is executed nor the revaluation/splitting is performed. Will it double charge the costs i.e the costs in FI will be isolated and be left in GLs while the applied costs will be transferred to the FG & later in COGS along with the material costs?

former_member196210
Participant
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Hi,

Will it double charge the costs i.e the costs in FI will be isolated and be left in GLs while the applied costs will be transferred to the FG & later in COGS along with the material costs?


No, that is not double the cost. COGS will be net off with COGM account.


At the time of GR from production order accounting entry is

Dr. Stock

Cr. COGM/Transfer to stock


At the time of PGI

Dr. COGS

Cr  Stock


Thanks,

Chandra

Former Member
0 Kudos

I think my question is not being understood, Let me put some numbers which might help us understanding the situation.

I have a product whose standard cost is set to say $100 ($90 Material, $5 Labor & $5 Overheads) and price is set to be $120, there is no opening & closing inventory and the goods will be sold in the same month and only one unit is produced during the month

When the actual materials consumed at was $92 and while making the confirmations & finalizing the goods movement lets assume the standard cost of overheads & labor was charged ($5 each) and now the order contains a debit of $102

When settling this order without running allocation cycle,  splitting/revaluation of prices etc, The cost debit to FG account will be the standard cost i.e $100 while the difference i.e $2 will be settled in the variance account (Only material variance)

My question is when this FG is later transferred to COGS it will be again $100 and remember since to revaluation of overhead prices is done the standard overheads & labor cost is included in this $100 while the variance of $2 will be shown again.

Now lets suppose in isolation the FI is charged with $12 of cost in terms of labor and overhead accounts, who, since are not allocated & written on the orders, are isolated and will be appearing in the expenses section instead of only incremental part of theirs i.e ($12-$10=$2) should be shown as unabsorbed costs

Will the P&L in this scenario depict a picture of

Particulars                        $

Renevue                         120

COGS (STD)                 (100) (90+5+5)

Variance                          (2)

_________________________________________

GP                                   18

___________________________________________

Expenses                         12

______________________________________________

Net Profit                             6

Instead of

Particulars                        $

Renevue                         120

COGS (STD)                 (100) (90+5+5)

Variance                          (4)

_________________________________________

GP                                   16

___________________________________________

Expenses                         0

______________________________________________

Net Profit                             16