TM Research & Development
STANDARD FIXED
OVERHEAD RATE
Ref: SFOHD/082012
Prepared by
Noor Rafiza A Rahman
Assistant Manager
Verified by
Jalaluddin Rahim Samsudin
Manager
Endorsed by
Norwati Mohd Aris
Chief Financial Officer
TM Research & Development
CONFIDENTIAL
___________________________________________________________________________________
Contents
1.
OBJECTIVE ...................................................................................................................................... 2
2.
BACKGROUND ................................................................................................................................ 2
3.
GLOSSARY/ DEFINITION ................................................................................................................. 2
4.
CLASSIFICATION AND ALLOCATION ............................................................................................... 3
5.
BASIS AND METHOD ...................................................................................................................... 3
6.
TMR&D STANDARD FIXED OVERHEAD RATE ................................................................................. 5
7.
CONCLUSION .................................................................................................................................. 6
Standard Fixed Overhead Rate
1
TM Research & Development
CONFIDENTIAL
___________________________________________________________________________________
1. OBJECTIVE
1.1
The objective of this paper is to establish a Standard Fixed Overhead Rate for Telekom
Research & Development Sdn. Bhd. (TMR&D).
1.2
The standard will serve as a guideline for planning and budgeting purposes with effect
from 1 August 2012.
1.3
The standard provides a rate for each of fixed overhead according to company main
activities:
 Fixed overhead rate for Research
 Fixed overhead rate for Support (including Commercialization)
2. BACKGROUND
2.1
Data and analysis of expenditure and costs were gathered since April until July 2012.
2.2
Although TM Centralized Strategic Costing Management (CSCM) does not establish any
guideline for fixed overhead rate, discussions were held with CSCM and TMR&D Project
Management Office (PMO) during the development of the standard.
2.3
A proposal to establish a TMR&D Standard Fixed Overhead Rate was presented to MCM
in June 2012.
3. GLOSSARY/ DEFINITION
3.1
Overhead
Ongoing non labour expenses incurred to operate a
company. Must be met regardless of activities/
production. Can either be fixed or variable.
3.2
Fixed Overhead
Costs which do not vary with company activities and
somewhat predictable in short/middle run. In the long
run, fixed overhead becomes variable overhead. For
example rent, utilities, cleaning services, security etc.
3.3
Variable Overhead
Overheads which vary according to company
activities/production. Examples include travel and
transportation, consumable items, postage, training
etc.
3.4
Cost allocation
Tracing costs back to cost centre with the best causal
or beneficial relationship measure.
3.5
Cost centre
Organizational departments/units of TMR&D which
costs are accumulated or ascertained for the purpose
of cost control
Standard Fixed Overhead Rate
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TM Research & Development
CONFIDENTIAL
___________________________________________________________________________________
3.6 Activity group
Grouping cost centres according to 2 main company
activities, either research or support.
3.7
FINSSO
TM Finance Shared Service Organization
3.8
HRSSO
TM Human Resource Shared Service Organization
3.9
SAP license
License payable for each staff to access GEMS/SAP
system.
4. CLASSIFICATION AND ALLOCATION
4.1. CLASSIFICATION OF FIXED OVERHEAD
4.1.1 Trends of company costs are reviewed for past 4 years and classified either as
fixed or variable cost.
4.1.2
Only fixed costs which deemed as predictable and significant in value are
included in the overhead rate standard.
4.1.3
Source of data used for review and calculation for TMR&D fixed overhead are:
 Audited financial statements
 Financial forecasts 2012
 Contracts and agreements on services rendered
4.2. COST ALLOCATION
4.2.1 Cost centres are grouped by 2 main activities; Research and Support.
4.2.2
The basis to allocate costs to cost centres shall use the best measure that
reflects causal or beneficial relationship.
5. BASIS AND METHOD
5.1. The fixed overhead standard is for current business environment with manpower of
343.
5.2. The office/lab spaces (areas) and manpower are grouped according to activity as below:
Basis of allocation
Area (sqf)1
Total staff
1
Research
Support
Total
77,208
260
28,225
83
105,433
343
See Appendix 1
Standard Fixed Overhead Rate
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TM Research & Development
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5.3. For electricity, costs are first divided by type of consumption2 before assigned to activity
group:
% of total
electricity
costs
14%
70%
16%
100%
Type of
consumption
Lighting
Cooling
General power
5.3.1
The percentage of cost allocation by activity group:
Type of
consumption
Lighting
Cooling
General power
Research
Support
73%
82%
92%
27%
18%
8%
Total
Method of allocation
100% % Area
100% % kWH of cooling type
100% % consumption
5.4. Below are fixed costs to be allocated and method of allocation to cost centres:
Fixed Overhead Item
SAP user licence
Cleaning services
Security services
Building rental
Other rental
FIN SSO charges
HR SSO charges
Water
Electricity3
Telephone
Stationery
2
3
Method of allocation
No of staff
Area
Area
Area
No of staff
No of staff
No of staff
No of staff
(area/KWH/manpower)
No of staff
No of staff
Data based on study ‘Energy Saving Initiative – Towards 2 star rate AeMAS’ by Md Hisam Hanapei
See Appendix 2
Standard Fixed Overhead Rate
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TM Research & Development
CONFIDENTIAL
___________________________________________________________________________________
5.5. Total fixed overhead for allocation is as follows:
Items
Cost per
annum
RM
375,459
84,997
66,000
569,840
244,217
4,057,625
346,727
23,332
2,438,207
534,785
205,800
8,946,991
SAP user licence
FIN SSO charges
HR SSO charges
Cleaning services
Security services
Building rental
Other rental
Water
Electricity
Telephone
Stationery
TOTAL
Cost per
month
RM
31,288
7,083
5,500
47,487
20,351
338,135
28,894
1,944
203,184
44,565
17,150
745,583
5.6. Using the basis as per 5.4, fixed overhead per month as per 5.4 are allocated to activity
group to derive at standard fixed overhead rate per staff per month.
6. TMR&D STANDARD FIXED OVERHEAD RATE
6.1. The TMR&D Standard Fixed Overhead Rate per staff per month are as below:
Fixed Overhead Rate per staff per month
Overhead Item
SAP user licence
Cleaning services
Security services
Building rental
Other rental
FIN SSO charges
HR SSO charges
Water
Electricity
Telephone
Stationery
TOTAL
Standard Fixed Overhead Rate
Co Level
RM
Research
RM
Support
RM
91
138
59
986
84
21
16
6
592
123
50
2,167
91
134
57
952
84
21
16
6
642
123
50
2,177
91
153
66
1,091
84
21
16
6
436
123
50
2,136
5
TM Research & Development
CONFIDENTIAL
___________________________________________________________________________________
7. CONCLUSION
7.1. The Standard Fixed Overhead rate may serve as a guideline for the following purpose:
 as a guideline for budgeting and business planning
 as a baseline for cost improvement measurement
 estimation of overhead rate for product costing
 comparison and analysis of overhead according to activity
7.2. The standard shall be revised in the event where change in any of the cost components is
significant or at least every 2 years to reflect the current environment.
Standard Fixed Overhead Rate
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