Overheads are used in Manufacturing Specifications as an additional way of incorporating direct costs of the Manufacturing processes involved outside of more obvious materials, labour and other charges. Overhead items provide the ability to include those “hidden” costs associated with Manufacturing so that they are calculated in the cost of the finished products i.e. rent, electricity, machines, tools etc.
A specific value is not placed on the Overhead component itself. Instead, a percentage of the value of the items on the specification is used to calculate the value of overheads per specification product. This is then included in the final costing/valuation of the Product. It is also used to post a recovery to nominated Recovery Account which is usually a P&L account. Using this method, the overhead recovery is allocated based on the items that are manufactured through the accounting periods. In other words, the finished items that are making use of the overheads like machines, rent, power etc.
Multiple Overhead calculations can be inserted into Manufacturing Specifications and are calculated on the ‘Types’ so far being ether Materials, Labour, Setup or Other Charges. There might be a portion of the Overheads that can be directly attributed to the Labour component and others that attribute to the Material components. Generally, only 1 Overhead component is added per specification.
Example
Examples of typical overheads used by our customers in Manufacturing specifications are:
- Machinery costs/leasing costs
- Rent/leasing costs
- Utilities e.g. Power, Water, Gas
- Repairs & Maintenance – Up-keep of machines, factories, facilities
Methods of calculating Overhead percentages vary depending on how Overheads are defined in the business and the nature of the Manufacturing Process.
Minimum Requirements
Use of Overheads in costing specifications is completely optional, so you don’t not have to set up any overhead codes if you don’t need to.
Changing Established Data
You can add overheads and update specifications at any time, but you do need to perform a cost recalculation on the specifications to include the overhead change in the manufactured item’s cost.
You can also use the ‘what-if’ features to change an overhead’s details and see the effect on costs without committing to an actual change in cost.
Panel Options
- Standard panel features
- Maintenance
- Views
- Audit – shows an audit trail of the data changes made over time to the overhead currently being viewed
- Where used – shows a list of Specifications and Work Orders using the overhead currently being viewed.
- Reports
- List Overheads