# Product Variance Calculation

Gurus,

How do we calculate Product variance?

What is the procedure / process?

Where can the effect be seen?

Edited by: Bhatia on Oct 15, 2008 6:44 PM

##### Former Member replied

Hi,

**Variance Calculation**

As long the production order is not fully delivered or flagged Technical Complete the remaining order balance is treated as WIP. Otherwise the order balance shows up in variance calculation.

If a lot-based product-controlling WIP, is valuated at actual costs. The WIP is calculated as the difference between the debit and credit of an order as long as the order does not have the status DLV (delivered).

In lot-based product controlling the variances are not calculated until the order has the status DLV (finally delivered) or TECO (technically completed). This means that at the time the order has reached this status, the system no longer interprets the difference between the debit and the credit as work in process but as a variance. In lot-based product controlling orders never have work in process and variances at the same time.

Variance calculation compares the actual costs incurred for the production/process order with the target costs according to the standard cost estimate for the finished material, and assigns the individual variances to variance categories. The target costs are calculated using the quantity delivered for the order.

In this way you can find out which variances occurred between the value of the delivery and the actual costs and you can find the reason for the posting to the price difference account for materials with standard price control.

Variances from production (target version 1)

Variance calculation compares the actual costs incurred for the production order with the target costs for the production order and assigns the individual variances to variance categories. The target costs are calculated using the quantity delivered for the order.

This enables variance calculation to find out which variances occurred between the time the production order was created and the end of the production process.

Variances from planning (target version 2):

Variance calculation compares the planned costs for the production order with the target costs according to the standard cost estimate for the finished material, and assigns the individual variances to variance categories. The target costs are calculated using the quantity delivered for the order.

This enables variance calculation to find out which variance occurred between the time the standard cost estimate was created and the time the production order was created.

Variance categories:

The system assigns every variance to a variance category. The variance category indicates the cause of the variance (such as price change, lot-size variance). Variances are updated to the information system and passed on to Profitability Analysis according to variance category.

You differentiate between variance categories on the input side and on the output side:

u2022 Variances that occur because of goods issues, internal activity allocations, overhead and G/L account postings are displayed on the input side. Price variances, quantity variances, resource-usage variances and input variances are displayed on the input side.

u2022 Variances that occur because too little or too much of the planned order quantity were delivered, or because the delivered quantity was valuated differently are displayed on the output side.

Variances on the output side occur when you deliver using a price that differs from that found by dividing the target costs and the delivered quantity. If you deliver using the standard price, a variance can occur when the order lot size differs from the costing lot size. This is displayed as a lot-size variance.

**For config**

3.1.4.2 Variances & Settlement

Variance Calculation determines differences between the actual costs incurred on a production order and the standard costs of the material produced. Variances are calculated not at once, but for different variance categories. The variances computed are then transferred to CO-PA.

3.1.4.2.1 Define Default Variance Keys for Plants

Use

The Variance Key is part of the order header and controls variance calculation. The system selects the value set by this step as default value when a material master is created. From the material master the variance key then is transferred to the order when an order for the material is created.

Procedure

1. Access the activity using one of the following navigation options:

Transaction Code OKVW

IMG Menu Controlling Product Cost Controlling Cost Object Controlling Product Cost by Order Period End Closing Variance Calculation -> Define Default Variance Keys for Plants

2. Make the following entries:

Plant Variance Key

BP01 000001

BP02 000001

BP03 000001

BP0X 000001

3.1.4.2.2 Define Target Cost Versions

Use

The target cost version controls various parameters related to calculation of target costs in variance calculation. In variance calculation, target costs are needed as a comparison to the actual costs incurred.

Procedure

1. Access the activity using one of the following navigation options:

Transaction Code OKV6

IMG Menu Controlling Product Cost Controlling Cost Object Controlling Product Cost by Order Period End Closing Variance Calculation Define Target Cost Versions

2. Choose New entries and enter the following values or copy from default settings of CoArea 0001 to BP01:

CoArea TgtCostVsn Text Variance Variant Control Cost Target Cost

BP01 0 Target Costs for Total Variances 001 Actual Costs Current Std cost Est

BP01 1 Target costs for production variances 001 Actual Costs Plan Costs / Preliminary Cost Estimate

BP01 2 Target costs for planning variances 001 Plan Costs Current Std cost Est

3.1.4.2.3 Create Settlement Profile

Use

The settlement profile controls various parameters related to settlement.

Prerequisites

Allocation Structure

Procedure

1. Access the activity using one of the following navigation options:

Transaction Code SPRO

IMG Menu Controlling Product Cost Controlling Cost Object Controlling Product Cost by Order Period-End Closing Settlement Create Settlement Profile

2. Choose New Entries and enter header data. Then for each new entry choose Details and enter remaining data.

3. Overview of data records:

Profile Text

YGPI00 BP Process Order w/o CO-PA

YGPP00 BP Production Order w/o CO-PA

YGPI00 YGPP00

Actual costs/costs of sales

To be settled in full X X

Can be settled

Not for settlement

Default Values

Allocation Structure A1 A1

Source Structure

PA Transfer Struct.

Default object Type

Indicators

100% Validation X X

%-Settlement X X

Equivalence Nou2019s X X

Amount Settlement

Var. to co. bsd. PA

Valid receivers

G/L account N N

Cost center O O

Order O O

WBS Element O O

Fixed asset N N

Material O O

Network N N

Profit. Segment N N

Sales order O O

Cost objects O O

Order item O O

Business proc. N N

Real est. object N N

Other parameters

Document type SA SA

Max.no.dist.rls 3 3

Residence time 3 3

You have to assign Variance Key in material master for semi-finished and Finished goods in costing 1 tab also.

**To Execute**

KKS1-Collective Variance calculation

KKS2-Individual Variance calculation

CO88-Collective settlement

KO88-Individual settlement

Thanks,

Rau