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Planned & Actual Overhead Rates

tarun_n
Discoverer
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Hello friends..

In the costing sheet, under the percentage overhead rates..

Can someone please tell me what is the basic difference between the Planned Overhead rate (Overhead type 2) and actual overhead rate (overhead type 1)?

Please explain..

Regards

Shiv

Accepted Solutions (0)

Answers (2)

Answers (2)

Former Member
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1 is used for actual postings when you create orders or product cost collectors etc.

2 is for the plan cost calculation which you use in cost estimates and calculating plan costs for cost objects

former_member188826
Active Contributor
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Costing sheets are the mechanisms that enable charge overheads or production orders (or any other receivers for that matter). The percentages mentioned therein drive the overheads that go in the product cost estimates. What goes in product cost estimates are driven by the planned type (2).

On the other hand when production orders are created for a material; at the period end we calculate the overhead KGI2. These are actual overheads. When you maintain different percentage against (type 1 actual) you can see the difference. What is maintained in for actual gets charged to the production order. A CO document gets generated for this amount.

tarun_n
Discoverer
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Thanks very much Vasudevan, but doesn't that defeat the purpose of standard costing?

Regards

Shiv

former_member188826
Active Contributor
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Well, usually we maintain the same percentage for both plan and actual. Just for appreciating the difference, I indicated to try with a different %. This could be having an use too, where the planning is done at beginning of the year and later in the year, you land up in under absorption, you may want to absorb more on production order, you could resort to.

In cases of activity pricing, you can run an actual activity pricing, that can re-calculate the activities. But for indirect overheads, where costing sheets are used you can only change the actual (type 1) percentages.

Well the purpose of standard costing is to set a standard and monitor the variances as we produce. Whatever changes to actuals are made, anyway will be disclosed during the variance calculation.