Computation of Overheads:
Direct and Indirect overheads are
incurred to produce the finished goods from the Raw materials. At MIRACLE
Pharma Ltd. we propose to use Resource based absorption.
1. All
the overheads will be modeled as resources and will be absorbed in the product
cost on the basis of actual labor hours / machine hours consumed during the
production batch. A separate Resource class will be created for each overhead
to be consumed.
2. These
Resources will be mapped to every production activity in the routing attached
to the recipe.
3. Resource
absorption rate will be computed on the basis of the actual overhead expenses
incurred which will be captured in relevant Account balances in Oracle GL module.
4. The
account code combinations will be tagged with the relevant Resource Class. The
account balances will be obtained from the Standard Trial Balance report or a
custom report can be developed for it. The account balance to be absorbed can be
decided by the Cost Accountant based on the capacity utilization factor of the
plant.
5. The
computation of capacity Utilization factor will not be captured in the system.