Hi Kalyan,
The answers for your questions are like below:
1. What’s the calculation that system is doing when its posting only in Target costs ?
The material is there in the BOM, executed the cost estimate but there is no actual goods issue for this material. In this situation system will derive the target cost as per deliver quantity and consider the standard price of that material.
In your example it will applical for overhead.
2. How are "Overhead rate" cost elements derived from?
Please check your cost component structure for this overhead cost element which is coming, I mean the cost component which is related to overhead.
Regards,
Ravi