26 QAD Costing User Guide

In Item Overhead Cost Update, the material percentage is set to 150% and the other percentages to
zero. Use This/Lower Level Costs is set to Lower Level.
Fig. 4.4
Item Overhead Cost Update (1.4.21)

Set to
Lower
Level

This calculation generates overhead costs of 4.50 (150% of 3.00) for item B, 10.50 (150% of 7.00)
for item C, and 15.00 (150% of 10.00) for item A. Items D, E, F, and G have overhead costs of
zero.
Fig. 4.5
Item Overhead Cost Calculation
-
A er
is- ow
Th L
Material 10.00
Labor
Burden
Overhead 15.00
Subcontract

- -
B er C er
i s- o w i s- o w
Th L Th L
Material 3.00 Material 7.00
Labor Labor
Burden Burden
Overhead 4.50 Overhead 10.50
Subcontract Subcontract

- r- - -
D er E e F er G er
is- ow i s- o w is- ow i s- o w
Th L Th L Th L Th L
Material 1.00 Material 2.00 Material 3.00 Material 4.00
Labor Labor Labor Labor
Burden Burden Burden Burden
Overhead 0.00 Overhead 0.00 Overhead 0.00 Overhead 0.00
Subcontract Subcontract Subcontract Subcontract

The second product structure cost rollup adds the calculated this-level overhead costs for items D
and E to B, then the costs of F and G to C, then the costs of B and C to A.
Note You cannot calculate this-level costs for a specific cost element based on both this-level and
lower-level cost elements in the same calculation. Calculate this-level costs first for the lowest
level, then the next highest level, and so on. Since you must do lower-level and this-level cost
updates separately, check each level before going to the next.

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Fig. 4.6
Results of Second Product Structure Cost Rollup
-
A er
is- ow
Th L
Material 10.00
Labor
Burden
Overhead 15.00 5.00
Subcontract

r - -
B C er
is
- we i s- o w
Th Lo Th L
Material 3.00 Material 7.00
Labor Labor
Burden Burden
Overhead 4.50 0.00 Overhead 10.50 0.00
Subcontract Subcontract

r- er
- r- er
-
D is - we E i s- o w F is - we G i s- o w
Th Lo Th L Th Lo Th L
Material 1.00 Material 2.00 Material 3.00 Material 4.00
Labor Labor Labor Labor
Burden Burden Burden Burden
Overhead 0.00 Overhead 0.00 Overhead 0.00 Overhead 0.00
Subcontract Subcontract Subcontract Subcontract

Processing Considerations
Before running the calculation, consider the following:
• At which level will you calculate overhead? The lowest level parent item? The highest level
parent item? The planning level? This decision varies from company to company.
It is important not to base costs indirectly on themselves. The previous example illustrates why
you have to be careful. Item A has a lower-level overhead of 15.00 (4.50 + 10.50). However,
Item Overhead Cost Update also calculated this-level overhead of 15.00 (150% of 10.00, the
this-level material cost).
When you run the calculation for item A, you would calculate an overhead cost that is too
high, unless you want the overhead for A to be 300% of 10.00. In a product structure with
many levels, the inaccuracies would be even more striking. To prevent this, calculate costs
from only one level.
• Which overhead percentage will you use for each level?
In the item burden and overhead cost update functions, the default percentage is 100%. When
calculating lower-level costs, typically change this to 0%.

Moving Current Costs to the General Ledger

Update the current cost set during cost rollups first, verify the changes, and then copy the updated
costs to the GL cost set.
Moving current costs can have significant effects on the general ledger. All changes to GL costs
create a GL cost adjustment, updating the value of inventory.

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