Understanding Production Order Variance Part 2 Price Difference Variance

8/10/2019 Understanding Production Order Variance Part 2 Price Difference Variance

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SAP ERP Manufacturing - ProductionPlanning (SAP PP): UnderstandingProduction Order Variance - Part 3 Price

Difference VariancePosted by Ranjit John 27-Mar-2012 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 mentionedthe main resaons for varinace in production order. In this blog let us see in detail the price difference variacneposted during order settlement.

Input Price Variance:Input price variance occurs as a result of material price change after the higher level material cost estimate isreleased.It occurs in any of the below mentioned scenarios;

If the material valuation is based on standard price control, a standard cost estimate for thecomponent 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 componentcould 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;

Let 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 OrderConfirmation 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 Mate rial Price Difference 2) Finished / Semi Finished Good Price Difference

Let us try to analyse the scenarios one by one;Let us take Raw Material "RM1" as an example;The Standard Cost Esti mate releas ed for Finished Good "FG1" is as Follows;Raw Material Std. Rate -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on 01.01.2012 Raw Material Std. Quantity -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on 01.01.2012
http://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1http://scn.sap.com/people/ranjit.johnhttp://scn.sap.com/community/erp/manufacturing-pp/blog/2012/03/13/understanding-production-order-variance--part-1http://scn.sap.com/people/ranjit.john


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SAP ERP Manufacturing - Production Planning (SAP PP): Understanding Production Order Variance - Part 3Price Difference Variance


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

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 1.0

Scenario 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 01.01.2012 Raw Material Actual Rate -> As per Moving Average Price as on 01.02.2012

Material /OverHead

Std. Rate Std.Quantity

Std. Cost ActualRate

ActualQuantity

ActualCost

Variance

RawMaterial 1(RM1)

25.00 1000.00 25,000.00 35.00 1000.00 35,000.00 (10,000.00)

RawMaterial 2(RM2)

10.00 1000.00 10,000.00 15.00 1000.00 15,000.00 (5,000.00)

RawMaterial 3(RM3)

60.00 1000.00 60,000.00 57.00 1000.00 57,000.00 3,000.00

RawMaterial 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


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FinishedGood (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 01.01.2012 Semi 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 01.01.2012 Semi 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

RawMaterial 1(RM1)

10.00 1000.00 10,000.00 10.00 1000.00 10,000.00 0.00

SemiFinishedGood 1(SFG1)

25.00 1000.00 25,000.00 35.00 1000.00 35,000.00 (10,000.00)


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SemiFinishedGood 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

FinishedGood 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 beposted. 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

RawMaterial 1(RM1)

10.00 1000.00 10,000.00 8.00 1000.00 8,000.00 2,000.00

RawMaterial 2(RM2)

20.00 1000.00 20,000.00 22.00 1000.00 22,000.00 (2,000.00)

RawMaterial 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


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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

FinishedGood 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 Entrie s 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 OrderVariance

XXX

Table 7.0
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b.2) Finished / Semi Finished Good Price Difference When a cost estimate f or a finished / semi finished good is released and the higher level product costestimate is not updated.11218 Views Tags: financial_excellence , mill_products , enterprise_resource_planning ,sap_erp_manufacturing_production_planning

Ranjit John07-Dec-2014 14:29Thanks guys for the encourageme nt. Happy to hear that my efforts helped.

Venkatesh Bandi

31-Aug-2014 19:27Thanks Mr.R anjit for sharing this article. It helped me to understand better on this topic.

Ranjit John30-Jun-2014 11:24Thank you

Devendra F08-Feb-2014 07:10Hi Ranjit,U have worked on detailed level,It is valuable guide, Devendra

Ranjit John20-Dec-2013 15:43Thank You Ikram

Ikram hazari
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18-Jul-2013 22:29nice article, thanks a lot

Ranjit John13-Mar-2013 13:11Thank you Nithin. Setting to see variance?Kindly rate the article

Nitin Jagt ap09-Jan-2013 08:08Hi Sir,Its very good article , Thanks a lot.I have one qu estion.What ar e the setting/steps we have to carried out to activate/or to see the Variances inCost Analysis of Production Order. Nitin

Krishna R in response to Ranjit John on page 7 01-Jan-2013 18:48Thank you

Ranjit John01-Jan-2013 17:29Thank You

ABDUL ALEEM30-Dec-2012 08:19Good Work

Ranjit John10-Dec-2012 11:45Thank you. Great to know that the effort helped.

davis yang04-Dec-2012 14:46HI ,Sir

It is good material , thanks you so much,

davis

Ranjit John14-Oct-2012 10:22Thank You :-)

mahesh A03-Oct-2012 15:51Hi Sir,
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Its very good article , Thanks a lot. -Mahesh Amale

Mohan Madaiah02-Oct-2012 11:52gud one... thanksMohan

Mohan Madaiah02-Oct-2012 11:49Hi Ranjit,thanks a lot for very nice doc with full of infomation with easy to understand concepts.

thanks Mohan

padmaja gan19-Sep-2012 06:09Dear Simon, Thanks a million helping me trough the process of costing. I am getting my concepts clear.I am reading thismaterial several times. Thanks a lot for the valuable information and I really appreciate your help!

Thank you,Padmaja

SAP FICO SAP FICO10-Sep-2012 16:46Hi Ranjith,

Good one------

MS kaushek27-Apr-2012 20:09Good Work

Ranjit John in response to Taral Patel on page 8 10-Apr-2012 11:01Thank you Taral, Kindly rate the articles.

Taral Patel
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07-Apr-2012 08:34Thanks Ranjit, Nice article to know in depth.

Thanks,Taral Patel

Ranjit John in response to Sunil Deshpande on page 9 06-Apr-2012 20:08thank u sunil.please check my first blog understanding production order variance part 1

Sunil Deshpande06-Apr-2012 12:53Dear Ranjit,Nice and well composed article. Thanks for sharing,

With warm re gards, Sunil Deshpande

Ranjit Joh n in response t o Sundhu PP o n page 9 28-Mar-2012 12:42Thank you Sundhu

Sundhu PP28-Mar-2012 12:35Dear Ranjit,

Wonderful art icle and Thank s for sharing.. . Keep posting!!Regards,Sundhu

Ranjit Joh n in response t o pravin ujwalk ar on page 9 28-Mar-2012 12:11Thank You

pravin ujwalkar in response to Ranjit John on page 9 28-Mar-2012 12:03Hi,Thanks for sharing such a good information.

Ranjit John in response to Muhamed Faisal on page 9 27-Mar-2012 13:49Thank You Muhamed,Kindly rate th e article

Muhamed Faisal27-Mar-2012 12:57
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Hi Ranjitthanks again for sharing valuable informationExpecting more .....!!!!!!!!!!!!!!!Faisal

Understanding Production Order Variance Part 2 Price Difference Variance

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