Guidelines for Overhead Allocation

Review guidelines for maintaining and running overhead allocation.

Running Overhead Allocation

Deltek recommends the following guidelines:

• Run overhead when there is only one period.
• Run overhead before you review project reports at cost rates for regular projects and tasks.
• Run overhead before you close a period.

Because overhead is a year-to-date calculation, you can run it multiple times. However, overhead must be run in all prior periods before you run it in the current period.

Assignment Method

You should expect to generate a variance when you use the Assignment method. Monitor the variance amount quarterly to determine whether or not you need to adjust the percentage.

Adjusting Overhead Rates for Seasonal Fluctuations

In months when overhead costs change dramatically from the previous month, run the overhead allocation process manually (before the end of accounting period closeout), to get accurate project data on reports.

For many businesses, there are seasonal periods in which the company's overhead costs increase or decrease suddenly. For example, during months when many employees go on vacation, vacation time is charged to overhead projects. At the same time, less direct labor is charged to regular projects.

Later, when direct labor charges increase again, the overhead rate comes closer to the average. However, your project reports do not reflect that change until overhead is allocated again. DPS uses a provisional overhead rate to calculate the projects' overhead until overhead is allocated again.

In the vacation example, the overhead figures on the September project reports will still be inflated unless you run the overhead allocation process manually prior to printing month-end reports. Otherwise, you have to wait for October project reports to reflect the lower rate.

Adjusting Overhead Manually After Posting

When you prorate overhead, there may be times when you want the overhead figures on the project reports to match the indirect expenses on the Income Statement precisely. In this case, you should run the overhead allocation process manually after you post all transactions for the current period, but before you print project reports. If you do not, DPS uses a provisional or estimated number on project reports.