Understanding Production Order Variance - Part 2

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Understanding Production Order Variance - Part 3 Price Difference VarianceAuthor: Ranjit Simon John

In my blog " Understanding Production Order Variance - Part 2 The SAP Perspective" I have mentioned the main resaons for varinace in production order. In this blog let us see in detail the price difference variacne posted during order settlement.Input Price Variance:Input price variance occurs as a result of material price change after the higher level material cost estimate is released.It occurs in any of the below mentioned scenarios;

If the material valuation is based on standard price control, a standard cost estimate for the component could be released after the cost estimate for the assembly is released.If the material valuation is based on Moving average price control, a goods receipt of the component could change the component price after the cost estimate for the material is released.

Input price variance = (actual price plan price) * actual input quantity Let us try to understand How Price difference variance occours; The Price difference Variance will be posted mainly during the following process;

a) Process Order Confirmation Price difference variance occours mainly due to the following reasons; 1) Different Raw Material Price in released Standard Cost Estimate and Process Order Confirmation 2) Change of Standard Price of Finished or Semi Finished Good. b) Cancellation of Process Order Confirmation Price difference variance occours mainly due to the following reasons; 1) Raw Material Price Difference 2) Finished / Semi Finished Good Price DifferenceLet us try to analyse the scenarios one by one;Let us take Raw Material "RM1" as an example;The Standard Cost Estimate released for Finished Good "FG1" is as Follows;Raw Material Std. Rate -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on 01.01.2012Raw Material Std. Quantity -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on 01.01.2012

Material / OverHead Std. Rate Std. Quantity Std. Cost

Raw Material 1 (RM1) 25.00 1.00 25.00

Raw Material 2 (RM2) 10.00 1.00 10.00

Raw Material 3 (RM3) 60.00 1.00 60.00

Raw Material 4 (RM4) 15.00 1.00 15.00

Understanding Production Order Variance - Part 3 Price Difference Variance Posted by Ranjit John in SAP ERP Manufacturing - Production Planning (SAP PP) on 27 Mar, 2012 6:24:14

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ADMIN 1.50 1.00 1.50

DEPRIN 1.75 1.00 1.75

MACOOH 1.25 1.00 1.25

LABOUR 1.30 1.00 1.30

POWER 0.43 1.00 0.43

Finished Good 1 (FG1) 116.23 1.00 116.23

Table 1.0Scenario 1: a) Process Order Confirmation: a.1) Different Raw Material Price in released Standard Cost Estimate and Process Order Confirmation 1000 TO of Finished Good "FG1" confirmed (Produced). Planned and Actual Material Consumption for "FG1" (1000 TO);Raw Material Std. Rate -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on 01.01.2012Raw Material Actual Rate -> As per Moving Average Price as on 01.02.2012

Material / OverHead Std. Rate Std. Quantity Std. Cost Actual Rate Actual Quantity Actual Cost Variance

Raw Material 1 (RM1) 25.00 1000.00 25,000.00 35.00 1000.00 35,000.00 (10,000.00)

Raw Material 2 (RM2) 10.00 1000.00 10,000.00 15.00 1000.00 15,000.00 (5,000.00)

Raw Material 3 (RM3) 60.00 1000.00 60,000.00 57.00 1000.00 57,000.00 3,000.00

Raw Material 4 (RM4) 15.00 1000.00 15,000.00 15.00 1000.00 15,000.00 0.00

ADMIN 1.50 1000.00 1,500.00 1.50 1000.00 1,500.00 0.00

DEPRIN 1.75 1000.00 1,750.00 1.75 1000.00 1,750.00 0.00

MACOOH 1.25 1000.00 1,250.00 1.25 1000.00 1,250.00 0.00

LABOUR 1.30 1000.00 1,300.00 1.30 1000.00 1,300.00 0.00

POWER 0.43 1000.00 430.00 0.43 1000.00 430.00 0.00

Finished Good (FG1) 116.23 1000.00 116,230.00 128.23 1000.00 128,230.00 (12,000.00)

Table 2.0The variance has been posted because of the change in Raw Material Price. a.2) Change of Standard Price of Finished or Semi Finished Good Let us consider Finished Good 2 for explaining the scenario. Released Standard Cost Estimate for Finished Good 2 "FG2" is;Semi FInished Good Std. Rate -> As per Released Standard Cost Estimate of Finished Good 2 (FG2), Released on 01.01.2012Semi Finished Good Std. Quantity -> As per Released Standard Cost Estimate of Finished Good 2 (FG2), Released on 01.01.2012

Material / OverHead Std. Rate Std. Quantity Std. Cost

Raw Material 1 (RM1) 10.00 1.00 10.00

Semi FInished Good 1 (SFG1) 25.00 1.00 25.00

Semi FInished Good 2 (SFG2) 20.00 1.00 20.00

ADMIN 1.50 1.00 1.50

DEPRIN 1.75 1.00 1.75

MACOOH 1.25 1.00 1.25

LABOUR 1.30 1.00 1.30

POWER 0.43 1.00 0.43

Finished Good 2 (FG2) 61.23 1.00 61.23

Table 3.0Let us consider that Standard Cost Etimate for Semi Finished Good 1 ("SFG1") was released on 01.02.2012.New Standard Cost of SFG1 = 35.00Standard Cost Estimate for "FG2" was not run or released after "SFG1" cost estimate release.Planned and Actual Material Consumption for "FG2" (1000 TO);Semi Finished Good Std. Rate -> As per Released Standard Cost Estimate of Finished Good 2 (FG2) , Released on 01.01.2012Semi Finished Good Actual Rate -> As per Released Standard Cost Estimate of Semi Finished Good (SFG) , Released on 01.02.2012

Material / OverHead Std. Rate

Std. Quantity

Std. Cost Actual Rate

Actual Quantity

Actual Cost

Variance

Raw Material 1 (RM1) 10.00 1000.00 10,000.00 10.00 1000.00 10,000.00 0.00

Semi Finished Good 1 25.00 1000.00 25,000.00 35.00 1000.00 35,000.00 (10,000.00)

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(SFG1)

Semi Finished Good 2 (SFG2)

20.00 1000.00 20,000.00 18.00 1000.00 18,000.00 2,000.00

ADMIN 1.50 1000.00 1,500.00 1.50 1000.00 1,500.00 0.00

DEPRIN 1.75 1000.00 1,750.00 1.75 1000.00 1,750.00 0.00

MACOOH 1.25 1000.00 1,250.00 1.25 1000.00 1,250.00 0.00

LABOUR 1.30 1000.00 1,300.00 1.30 1000.00 1,300.00 0.00

POWER 0.43 1000.00 430.00 0.43 1000.00 430.00 0.00

Finished Good 2 (FG2) 61.23 1000.00 61,230.00 69.23 1000.00 69,230.00 (8,000.00)

Table 4.0Scenario 2: b) Cancellation of Process Order Confirmation b.1) Raw Material Price Difference If the Moving Average Price of Raw Material during confirmation (Production) of Finished Good 3 "FG3" is different from the Moving Average Price when the confirmation is reversed, price difference will be posted. For Example: 1000 TO Finished Good 3 FG3 Confirmed.Note:Std. Rate -> During Confimration of Finished Good 3 (FG3)Std. Quantity -> During Confimration of Finished Good 3 (FG3)Std. Cost -> During Confimration of Finished Good 3 (FG3)Actual Rate -> During Finished Good 3 (FG3) Confimration CancellationActual Quantity -> During Finished Good 3 (FG3) Confimration CancellationActual Cost -> During Finished Good 3 (FG3) Confimration Cancellation

Material / OverHead Std. Rate Std. Qty. Std. Cost Act. Rate Act. Qty. Act. Cost Variance

Raw Material 1 (RM1) 10.00 1000.00 10,000.00 8.00 1000.00 8,000.00 2,000.00

Raw Material 2 (RM2) 20.00 1000.00 20,000.00 22.00 1000.00 22,000.00 (2,000.00)

Raw Material 3 (RM3) 25.00 1000.00 25,000.00 30.00 1000.00 30,000.00 (5,000.00)

ADMIN 1.50 1000.00 1,500.00 1.50 1000.00 1,500.00 0.00

DEPRIN 1.75 1000.00 1,750.00 1.75 1000.00 1,750.00 0.00

MACOOH 1.30 1000.00 1,300.00 1.30 1000.00 1,300.00 0.00

LABOUR 1.25 1000.00 1,250.00 1.25 1000.00 1,250.00 0.00

POWER 0.43 1000.00 430.00 0.43 1000.00 430.00 0.00

Finished Good 3 (FG3) 61.23 1000.00 61,230.00 66.23 1000.00 66,230.00 (5,000.00)

Table 5.0The GL Entries Posted during Confirmation of Finished Good 3 (Production);

Debit Credit

Stock of Finished Good 3 (FG3) XXX

COGM of Finished Good 3 (FG3) XXX

Raw Material Consumption XXX

Stock of Raw Material XXX

Table 6.0

Figure 1.0The GL Entries Posted during Confirmation Cancellation:

Debit Credit

COGM of Finished Good 3 (FG3) XXX

Stock of Finished Good 3 (FG3) XXX

Stock of Raw Material XXX

Raw Material Consumption XXX

Price Diff-Production Order Variance XXX

Table 7.0



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b.2) Finished / Semi Finished Good Price Difference When a cost estimate for a finished / semi finished good is released and the higher level product cost estimate is not updated.

8347 Views Products: sap_erp_manufacturing_production_planning Topics: financial_excellence, enterprise_resource_planning

Industries: mill_products

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27 Comments

Like (0)

Muhamed Faisal 27 Mar, 2012 12:57 PM

Hi Ranjitthanks again for sharing valuable informationExpecting more .....!!!!!!!!!!!!!!!Faisal

Like (0)

Ranjit John 27 Mar, 2012 1:49 PM (in response to Muhamed Faisal)

Thank You Muhamed,Kindly rate the article

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pravin ujwalkar 28 Mar, 2012 12:03 PM (in response to Ranjit John)

Hi,Thanks for sharing such a good information.

Like (0)

Ranjit John 28 Mar, 2012 12:11 PM (in response to pravin ujwalkar)

Thank You



Like (0)

Sundhu PP 28 Mar, 2012 12:35 PM

Dear Ranjit,

Wonderful article and Thanks for sharing.. . Keep posting!!Regards,Sundhu

Like (0)

Ranjit John 28 Mar, 2012 12:42 PM (in response to Sundhu PP)

Thank you Sundhu

Like (0)

Sunil Deshpande 6 Apr, 2012 12:53 PM

Dear Ranjit,Nice and well composed article. Thanks for sharing,With warm regards, Sunil Deshpande

Like (0)

Ranjit John 6 Apr, 2012 8:09 PM (in response to Sunil Deshpande)

thank u sunil.please check my first blog understanding production order variance part 1

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Taral Patel 7 Apr, 2012 8:34 AM

Thanks Ranjit, Nice article to know in depth. Thanks,Taral Patel

Like (0)

Ranjit John 10 Apr, 2012 11:01 AM (in response to Taral Patel)

Thank you Taral, Kindly rate the articles.

Like (0)

MS kaushek 27 Apr, 2012 8:09 PM

Good Work

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SAP FICO SAP FICO 10 Sep, 2012 4:46 PM

Hi Ranjith, Good one------



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padmaja gan 19 Sep, 2012 6:10 AM

Dear Simon, Thanks a million helping me trough the process of costing. I am getting my concepts clear.I am reading this material several times. Thanks a lot for the valuable information and I really appreciate your help! Thank you,Padmaja

Like (0)

Mohan Madaiah 2 Oct, 2012 11:49 AM

Hi Ranjit,thanks a lot for very nice doc with full of infomation with easy to understand concepts. thanks Mohan

Like (0)

Mohan Madaiah 2 Oct, 2012 11:52 AM

gud one... thanksMohan

Like (0)

mahesh A 3 Oct, 2012 3:51 PM

Hi Sir, Its very good article , Thanks a lot. -Mahesh Amale

Like (0)

Ranjit John 14 Oct, 2012 10:22 AM

Thank You :-)

Like (0)

davis yang 4 Dec, 2012 2:46 PM

HI ,Sir It is good material , thanks you so much, davis

Like (0)

Ranjit John 10 Dec, 2012 11:45 AM

Thank you. Great to know that the effort helped.

Like (0)

ABDUL ALEEM 30 Dec, 2012 8:19 AM

Good Work



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Like (0)

Ranjit John 1 Jan, 2013 5:29 PM

Thank You

Like (0)

Krishna R 1 Jan, 2013 6:48 PM (in response to Ranjit John)

Thank you

Like (0)

Nitin Jagtap 9 Jan, 2013 8:08 AM

Hi Sir,Its very good article , Thanks a lot.I have one question.What are the setting/steps we have to carried out to activate/or to see the Variances in Cost Analysis of Production Order. Nitin

Like (0)

Ranjit John 13 Mar, 2013 1:11 PM

Thank you Nithin. Setting to see variance?Kindly rate the article

Like (0)

Ikram hazari 18 Jul, 2013 10:29 PM

nice article, thanks a lot

Like (0)

Ranjit John 20 Dec, 2013 3:43 PM

Thank You Ikram

Like (0)

Devendra F 8 Feb, 2014 7:10 AM

Hi Ranjit,U have worked on detailed level,It is valuable guide, Devendra

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