Pages

Subscribe:

Ads 468x60px

How overheads will be calculated in ERP implemetation?



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.