You can decide if material overhead is to be earned during purchase order receipt and inter-organization transactions. You have the flexibility to decide if the transaction is going to earn material overhead, depending on the item type. The rules you define override the default material overhead absorption for purchase order receipt, assembly completion and return, and inter-organization transfers for Standard, Average, FIFO, and LIFO, costing organizations. The rules you define will not override material overhead absorption for work in process completion transactions in standard costing organizations.
 
Defining Material Overhead Defaults
You can define and update default material overhead subelements and rates. These defaults speed data entry when defining items. When you define items, these material overheads are defaulted into the Frozen cost type under standard costing, and into the cost type you defined to hold average rates under average costing.

For buy items, enter material costs. For make items, roll up costs. You can specify an organization and category default for the same material overhead subelement. When you have multiple defaults for the same subelement, the category default takes precedent over the organization default. If you have two category level defaults, the
default that matches the item's planning code takes precedence.