Multi-level overhead costing

What is meant by Multi-level overhead costing?

The term "multi-level cost calculation" refers to a method for determining the costs of a product or service, where overhead costs are distributed across cost objects (products or orders) in multiple stages. This method allows for differentiated and transparent calculation, as different overhead rates can be applied to various cost types (e.g., materials, labor, administration) and cost centers. Multi-level cost calculation is particularly common in the manufacturing and service sectors.

Typical software functions in the area of "multi-level cost calculation":

• Overhead Rate Management: Administration and adjustment of overhead rates for different cost types and cost centers.
• Cost Center Accounting: Recording and allocation of costs to relevant cost centers to ensure transparent cost distribution.
• Multi-Level Calculation Structure: Creation of a hierarchical structure for calculation that allows multiple stages of overhead allocation.
• Reporting: Generation of detailed reports on the cost structure and the distribution of overhead costs to cost objects.
• Analysis Functions: Capabilities for analyzing and evaluating calculated costs to identify weaknesses and optimization potentials.
• Integration with Financial Accounting: Connection to financial accounting for seamless transfer of calculated costs into financial reports.
• Scenario Analysis: Conducting scenario analyses to assess the impacts of changes in overhead rates or cost structures.