Field help (CLCLEV) 

The application method only concerns the material costs ; it determines if the overheads are posted on the receipt to stock or on the issue from stock.
The posting method on receipt to stock signifies that the costs are applied during the calculation of the cost of the product itself.
The posting mode on issue from stock signifying that the costs are absorbed by the parent product that is uses (consumption) the product having a cost code with this method. The costs are included in the cost (production cost) of the parent product.

During the multi-level calculation of a cost, the overheads of each level can only be posted on the material, labour, sub-contract part of a cost, in no case can the overheads be posted on other overheads (cascade principle for multi level overheads).