Variable and Fixed Overhead Absorption in Microsoft Dynamics NAV

There are Dynamics NAV clients that would like to separate Variable and Fixed Overhead.

If we look at a Dynamics NAV Work Center Card, we see that we can put in a Direct Unit Cost and an Indirect Cost % or Overhead Rate. However, there is no place to indicate if this cost is Variable or Fixed.

Figure 1 – View of the Work Center Card

To accommodate a Fixed Cost Component to the Cost of Production, I start by creating a new Work Center that I have named “FIXED OVERHEAD”. I have set the Direct Unit Cost to 10.00 and the Unit cost Calculation to “Units”.

Figure 2 – Creating a new Work Center for the Fixed Cost Component

I created a new General Product Posting Group called FIXED OH and pointed the Direct Cost Applied Account to a new General Ledger Account that I also called FIXED OH.

Figure 3 – Creating a new General Product Posting Group

I then added a Parallel Operation to the Routing Lines using the new FIXED OVERHEAD Work Center.

Figure 4 – Adding a Parallel Operation to the Routing Lines

To test it, I created a Released Production Order that calls for the routing to which I added the parallel step.

Figure 5 – Creating a Released Production Order that calls for the routing set up previously

After I have changed the Production Order to the finished status, I can see in the General Ledger that it reflects the appropriate Debit to the WIP account and to the Fixed Overhead Absorbed account.

Figure 6 – The General Ledger shows the appropriate values as desired

For more information on this or any other Dynamics NAV costing topic, please contact ArcherPoint.

Read more blogs by Bob Bergman for practical advice on using Microsoft Dynamics NAV.