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-WIP at actual valued based on actual debits to a manufacturing orders. (Mainly used in Product Cost by
Order)
The advantage of WIP at target calculation is that variances and WIP can be posted at same time. If production
orders remain open for multiple periods variances reconciliation is easier using WIP at target in Product Cost
By period.
WIP is calculated each period until the status of an order status set to fully delivered or TECO, and then the
entire WIP is cancelled and variance is calculated in Product Cost BY order.
Variance Calculation
As we know it helps us to provide the difference between 0rder debits and credits.
Target cost are determined during variance calculation therefore few check points before we
calculate Variances in Product Cost By period.
There must be Goods receipt for FG for at least one of the manufacturing orders
There must be variance key in the product cost collector
Standard cost estimate should be valid the day of posting for product cost Collector
The material origin indicator should be selected for all cost related components
Variance configuration must be carried out (see below variance configuration)
The product Cost Collector must have settlement type (PER)
Variance calculation using (KKS1/KKS5)
To calculate variances in Product Cost by Order which the manufacturing order must meet the following
conditions
Settlement Type FUL (Full settlement type) in settlement rule
Status DLV (delivered) or technical Complete (TECO)
Note-You can use Settlement type PER ( Period ) in Product Cost By Order where companies does
not wanted to calculate WIP and each order should be settled in the period. In that case you will have
to manually set the order status to TECO in order to calculate variances. This is not a SAP standard
practice but some companies do this.
Total variance-This is the only variance which is relevant to settlements, the difference between debit and
credits are settled to financial accounting, PCA and COPA. Target cost version 0 is used to calculate the total
variance. Other variances like Production variances and Planning variances are for information purpose only.
Settlement
Settlement is the last step in period end closing for product cost collector and Production orders.
Summarization
I have added one more step to get those KKBC reports for different purpose you can configure the same in
KKR0
Now lets see some basic configuration required for variance calculation SAP
Variance Configuration
Step-1 OKV1
By checking scrap indicator the value of scrap is calculated during variance calculation and deducted from total
variance.
Step-2 OKVW
When a material Master is created a default variance key is proposed for the costing 1
Step-3 T-code OKVG
If you don't select a particular category, the variances of that category will be added to the category of
remaining variances. An exception is the scrap variances. Scrap variances that are not shown as such can go
into any other variance category on the input side selection in this screen as we already defined it in Variance
Key.
Step-4
Defining Valuation variant for Scrap and WIP (Only Product cost By Period) - Configure it in IMG node
At period end Target cost are temporarily moved from Product cost collector to WIP Account. Variance is also
calculated and posted at the same time.
Note-In Product cost by Order this does not apply as WIP and Scrap is valuated at actual.
Step-5-T-code OKV6
Define Target Cost version
Target cost are based on current standard cost estimate which is actual credits and control cost which is actual
cost is actual debits. Valuation variant is to control which cost estimate is used to valuate scrap. You can
use different target versions for different variance like production variance and planning variances with other
parameters.
This is a basic document for Variance calculation and various steps involved with it. This is intended
for beginners who is starting to learn about Controlling. Please refer my previous documents posted in
SCN for fair idea about costing Basic of costing.
Basics of SAP Standard Cost estimate- Understanding the flow of cost settings-Part 1
Basics of SAP Standard Cost estimate- understanding costing variant-Part 2
Basics of Standard Costing - Understanding the Cost Component Structure-Part 3
Basics of Standard Costing - Understanding overhead cost flow-Part 4
Basics of Costing - Understanding Actual Cost
Let me know the feedback .I will try to come up with Cost center variance reporting and Scrap variances in my
future document which will complete the series of Variance calculation in SAP.
Thanks
Hrusikesh Dalai