Production Order Variance SAP

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Understanding Production Order Variance

– Part 2 The SAP Perspective
March 13, 2012 | 18,187 Views |
Ranjit Simon John

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1 of 22 31/12/2017, 8:05
Understanding Production Order

Variance – Part 2 The SAP Perspective
Author: Ranjit Simon John
Every PP, FI and CO user in any Manufacturing Industry will be having

a tough time while processing month-end activities. Production Order
Variance posted against each process orders will have to be examined,
explained & investigated thoroughly. Major questions arising will be;

Origin of Variance
How to Categorize the variance
How to cut down the variance.
Impact of variance on COGM, COGS & Closing Stock.
Answering these will be really tough.
We have faced all these scenarios and after months of deep research
in this field I came across few conclusions.
For better understanding I will divide this blog into two categories;
Category A: Basic understanding of Production Order
Category B: Co-relating Category A scenarios with real life
scenarios.
Now let us examine the main points under

Category A:
The ultimate end point of any industry is sales. For selling the product
several process has to be carried out. The success of any management
depends on how well they forecast the sales, plan and schedules the
activities.
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3.1.1 Goods Issue to Production Order:
When goods are issued from inventory, a general ledger

balance sheet account is credited, and profit and loss consumption
(expense) account is debited. A primary cost element with the same
number and identifier as the inventory consumption is usually created
in CO during initial system implementation. When the system detects a

corresponding primary cost element in CO during a posting to General
ledger expense account, a posting to CO cost object is also required.
Primary Cost are posted to CO from FI.
GL entry during Goods Issue
Debit Credit
Raw Material Consumption XXX
Stock of Raw Material XXX
Table 1.0
3.2 Secondary Cost:
The costs in CO are allocated from overhead cost centers to

production cost centers during assessment and then onto production
order during activity confirmation.
3.2.1 Assessment
Period-end assessments move costs from overhead cost centers
to production cost centers.

3.2.2 Activity Confirmation:
When production order activities are confirmed, the production
or product cost collector is debited, and the production cost center is
credited. There are no FI postings during activity confirmation.
3.3 Primary Credits
5 of 22 31/12/2017, 8:05
Primary Credits occur when production orders deliver Finished /

Semi finished good into inventory.
As finished goods are delivered from manufacturing order into
inventory, an inventory balance sheet account is debited, and profit
and loss production output account is credited. Because there is a
primary cost element corresponding to the production output account,
a CO object is also credited. The finished goods are delivered from a
production order, so the system automatically chooses the production
order or product cost collector to receive the primary credit.
The credit value is calculated by multiplying the finished goods
standard price by the quantity delivered to inventory.
Debit Credit
Stock of Finished Good XXX
COGM of Finished Good XXX
Raw Material Consumption XXX
Stock of Raw Material XXX
Table 2.0
3.4 Secondary Credit
At period end the production order receives a secondary credit that is
equal to the variance during settlement, resulting in zero balance.

During the settlement process, product cost collectors and process
order variance are posted to Profitability Analysis (CO-PA) and FI.
100 Raw Material
Debit 100 Labor
100 Over Heads
Credit (250) Finished Good
Balance 50 Variance
Table 3.0
Total Variance is the difference between total production order debits and
credits.
Variance calculation at period end divides the variance into categories,

based on the source of the variance.
Production Variance settled to CO-PA are included at the gross profit

margin level.
Cost Center under/over absorption costs assessed to CO-PA are
included at the operating profit level.
6 of 22 31/12/2017, 8:05
3.5) Post Actual Costs
1) Period – End Processing
5.1 The three common types of variance calculation are as follows;

5.1.1) Total Variance
Total variance is the difference between the actual

cost debited to the order and credits from deliveries to inventory. Total
Variance is variance relevant to settlement. The variance is settled in
Financial Accounting (FI), Profit Center Accounting and Profitability
Analysis
5.1.2) Production Variance
Production variance is the difference between net actual

costs debited to the order and target costs based on the preliminary
cost estimate and quantity delivered to inventory.

Production variance is not relevant for settlement, only for
information.
5.1.3) Planning Variance
Planning variance is the difference between costs on the

preliminary cost estimate for the order and target costs based on the
standard cost estimate and planned order quantity.

5.2) Variance Categories
During variance calculation, the order balance is divided into

categories on the input and output sides. Variance category provide
reasons for the cause of the variance. There are no FI posting during
variance calculation.
Variance can be categorized into Input Variance and Output
Variance
5.2.1) Input Variance
Variance based on Goods Issue, Internal activity allocation,
overhead allocation, general ledger account postings.

Input variance is divided into the following categories during
variance calculation, according to their source:

Category IV.1) 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
7 of 22 31/12/2017, 8:05
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
Category IV.2) Resource – Usage Variance
Resource – Usage variance occurs
as a result of substituting
components. This could occur if a
component is not available, and
another component with a different

material number is used instead.
Resource Usage variance = Actual costs –target costs – Input

price variance
Category IV.3) Input quantity variance

Input quantity variance occurs as a
result of a difference between plan
and actual quantities of materials
and activities consumed.

Input quantity variance = (actual input quantity – target input
quantity) * plan price

Category IV.4) Remaining Input Variance
When input variance cannot be
assigned to any other variance

category. 5.2.2) Output Variance
Variance can be from too little or too much of planned order quantity
being delivered, or because the delivered quantity was valuated
differently.
5.2.2) Output Variance is divided into;

Category OV.1) Mixed – Price Variance
Mixed-Price variance occurs when inventory is valuated using a

mixed cost estimate for the material.
Category OV.2) Output Price Variance
Output price variance can occur in the following scenarios;
1) If the standard price is changed after delivery to inventory,
8 of 22 31/12/2017, 8:05
and before variance calculation.

2) If the material is valuated at moving average price and it is
not delivered to inventory at standard price during target value
calculation.
Output price variance = actual activity * (plan price – actual
price)
Category OV.3) Lot Size Variance
Lot Size variance occurs if a manufacturing order lot size is different
from the standard cost estimate costing lot size.
Category OV.4) Remaining Variance
Occurs if variance cannot be assigned to any other variance

category.
Category OV.5) Output Quantity Variance

Represents the difference between manually entered actual costs
and allocated actual quantities.

Output Quantity variance = ( actual quantity –manual actual
quantity) * plan price
5.3) Period End
The most important period-end process relevant to production
order variance analysis is;
Overhead
WIP
Variance Calculation
Variance can be calculated using the formula;

Variance = Actual Cost – Actual Cost Allocated (credits) – WIP
– Scrap
During variance calculation, target and control costs are compared, and
variance categories are assigned. Variance categories are assigned in
the following sequence:
Input price variance
Resource – usage variance
Input quantity variance
Remaining input variance
Mixed –price variance
Output price variance
Lot Size Variance
Remaining Variance
Settlement :
Settlement of Production Orders will be executed.
9 of 22 31/12/2017, 8:05
KO88 – Individual Settlement
CO88 – Collective Settlement
Now let us examine the main points under

Category B:
Now you will be having a basic idea about production order variance
, variance calculation types & various categories. Now let us try to co-
relate this with real life scenarios.

I will divide the topic into below mentioned sections;
1. How to analyze production order variance posted

against production orders
2. Major Reasons for the variance

3. How to minimize the variance
4. Impact of production order variance on COGM, COGS &

Closing Stock
Category B.1) How to analyze variance posted against
production order
For explaining the scenarios I am taking one Semi Finished

Good (SFG1– Semi Finished Good 1) which is used as a raw
material for production of Finished Good.
Master Recipe of SFG1 is;
Item Resource Total Value Fixed Value Quantity Unit
1 POWER 12.90 12.90 0.030 MWH
2 ADMINI 1.00 0.00 1.00 TO
3 DEPRIN 1.00 0.00 1.00 TO
4 LABOUR 2.00 0.00 1.00 TO
5 MACOOH 0.74 0.00 1.00 TO
6 RAWMATERIAL1 8.10 0.00 0.81 TO
7 RAWMATERIAL2 1.49 0.00 0.061 TO
8 RAWMATERIAL3 1.83 0.00 0.103 TO
9 RAWMATERIAL4 0.12 0.00 0.002 TO
10 RAWMATERIAL5 4.31 0.00 0.024 TO
TOTAL 33.49 12.90
Figure 2.0
Process order No for SFG1 is 15000035

Variance Posted against the Process Order for the month is
128,190.87 AED
After technically completing (“TECO“) the process order & before
10 of 22 31/12/2017, 8:05
executing costing run check for the variance in transaction code KO88
(CO88 – Collective) in Test Run mode.
For analyzing the variance in detail we will use transaction codes
KKBC_ORD & KOB1.
Let me explain difference between KKBC_ORD and KOB1.
KKBC_ORD is used for analyzing single order. Planned and Actual cost
details relating to the production order will be recorded in KKBC_ORD.
KOB1 you can execute for single as well as bulk order. KOB1 provides
the “Actual” values (cost & quantity) of raw materials and overheads
used for the production of the material.
KKBC_ORD
Figure 3.0
KOB1
Figure 4.0
Here you can see settlement (Variance) of 128,190.87 AED.
I will explain how we are calculating the variance.

Below table shows the formula used for Variance Calculation.
All the Std. Rate, Std. Qty, Std. Cost value fields in Table 4.0 are
calculated based on the master details (Material Recipe Figure 2.0).
All the Actual Rate, Actual Qty. Actual Cost vale fields in table 4.0 are
extracted from KOB1.
Cost Elements Std. Std. Std. Actual Actual Qty. Actual Cost Variance
11 of 22 31/12/2017, 8:05
Rate Qty.
(Figure (Figure Cost Rate (Figure 4.0) (Figure 4.0)
2.0) 2.0)
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
RAWMATERIAL1 value / 49,663.00 496,630.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act

Total Std Cost
Qty * Qty * Cost /
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act

Total Std Cost
Qty * Qty * Cost /
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
RAWMATERIAL5 value / 9.00 517.57 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
RAWMATERIAL6 value / 21.00 735.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
12 of 22 31/12/2017, 8:05
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
Labor value / 59,900.00 119,800.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
Depriciation value / 59,900.00 59,900.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act

Total Std Cost
Qty * Qty * Cost /
Administration value / 59,900.00 59,900.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act

Total Std Cost
Qty * Qty * Cost /
MACOOH value / 59,900.00 44,326.00 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
Per
Ton Std Act
Total Std Cost
Qty * Qty * Cost /
POWER value / 1,609,780.00 692,205.4 – Act
FG Std Act
Qty Cost
Prd. Rate Qty
Qty
FINISHED
59,900.00 2,006,051.00
GOOD
Table 4.0
Now let us fill in values in Table 5.0 with the production order values.
Std.
Rate Std. Qty. Actual Qty. Actual Cost
Actual
Cost Elements Std. Cost
(Figure (Figure 2.0) Rate (Figure 4.0) (Figure 4.0)
2.0)
RAWMATERIAL1 10.00 48,519.00 485,190.00 10.00 49,663.00 496,630.00
13 of 22 31/12/2017, 8:05
Std.
Rate Std. Qty. Actual Qty. Actual Cost
Actual
Cost Elements Std. Cost
(Figure (Figure 2.0) Rate (Figure 4.0) (Figure 4.0)
2.0)
RAWMATERIAL2 24.4262 3,653.9 89,250.89 26.3338 3,411.00 89,824.45
RAWMATERIAL3 17.7670 6,169.7 109,617.00 17.9653 5,798.00 104,162.80
RAWMATERIAL4 179.5833 1,437.6 258,169.00 209.2312 1,003.00 209,858.91
RAWMATERIAL5 60.00 119.8 7,188.00 57.5078 9.00 517.57
RAWMATERIAL6 00.00 0.00 0.00 35.00 21.00 735.00
Labor 2.00 59,900.00 119,800.00 1.00 59,900.00 119,800.00
Depriciation 1.00 59,900.00 59,900.00 1.00 59,900.00 59,900.00
Administration 1.00 59,900.00 59,900.00 1.00 59,900.00 59,900.00
MACOOH 0.74 59,900.00 44,326.00 0.74 59,900.00 44,326.00
POWER 0.43 1,797,000.00 772,719.00 0.43 1,609,780.00 692,205.4
FINISHED
33.49 59,900.00 2,006,051.00
GOOD
TOTAL
Table 5.0
Now let us categorize the variance.
Variance has been posted in the following order
Serial Variance
Cost Element Variance Variance Category
No Class
RMV1 RAWMATERIAL1 (11,440.00) Category IV.3 C1
Category IV.3 + Category

RMV2 RAWMATERIAL2 (573.45) C2
IV.1

RMV3 RAWMATERIAL3 5,454.20 C2
IV.1

IV.1

IV.1
RMV6 RAWMATERIAL6 (735.00) Category IV.2 C3
OHV1 Power 80,504.6 Category IV.3
Table 6.0
Let us try to calculate Variance by applying Formula for each category.
14 of 22 31/12/2017, 8:05
Category IV.1: Input Price Variance = (Actual Price – Plan Price) *

Actual Input Quantity
Category IV.2: Resource Usage Variance – Actual Cost – Target Cost
– Input Price Variance
Category IV.3: Input Quantity Variance = (Actual Input Quantity –
Target Input Quantity) * Plan Price
Plan Target Input Target Actual Actual Input Actual

Cost Elements
Price Qty Cost Price Qty Cost
RAWMATERIAL1 10.00 48,519.00 485,190.00 10.00 49,663.00 496,630.00
RAWMATERIAL2 24.4262 3,653.90 89,251.00 26.3338 3,411.00 80,824.45
RAWMATERIAL3 17.7670 6,169.70 109,617.00 17.9653 5,798.00 104,162.80
RAWMATERIAL4 179.5833 1,437.6 258,169.00 209.2312 1,003.00 209,858.91
RAWMATERIAL5 60.00 119.80 7,188.00 57.5078 9.00 517.57
RAWMATERIAL6 0.00 0.00 0.00 35.00 21.00 735.00
Power 0.43 1,797,000.00 772,710.00 0.43 1,609,780.00 692,205.4
Table 7.0
Category B.2) Major Reasons for the variance
From My experience I can point out that Production order variance

occur mainly from;
a) Material BOM not updated properly (Category IV.3)

b) Material Price Change after release of Standard Cost Estimate
(Category IV.1)
c) Activity Price (Material Recipe) not updated properly (Category
IV.2)
d) Standard Cost estimate released for one production version and
confirmation done against another production order. (Category OV.3)

e) Total Planned Quantity and Actual Produced Quantity Difference
(Category IV.4)
f) Material used not included in BOM ((Category IV.2)
Let us try to analyze all the scenarios.
a) Material BOM not updated properly
Explained in Category B.1

b) Activity Price (Material Recipe) not updated properly
Explained in Category B.1
Total POWER consumption as per KOB1 (Actual as per Material Recipe)
and FBL3N should be approximately equal.

KOB1 -> POWER consumption for the Materials Produced
15 of 22 31/12/2017, 8:05
FBL3N -> Actual POWER receipt report

(Receipt = Consumption)
c) Standard Cost estimate released for one production version and
confirmation done against another production order.
Costing run executed for one Production Version and Process Order
created against another production version.
Let us take one example where two production versions are present
Production Version 1 and Production Version 2 for Finished Good FG1.
Production Version 1 will be using RM1 as raw material and production
version 2 will be using RM2 as raw material.
Standard cost estimate is released against Production version 1.

Let me explain with an example;
As per Released Standard Cost Estimate Material recipe / Ton of FG1
Production Version Resource Total Value Quantity
PO31 GCPRODCGM1 P031 POWER 15.05 0.035
PO31 GCPRODCGM1 P031 ADMINI 0.50 1.00
PO31 GCPRODCGM1 P031 DEPRN 1.00 1.00
PO31 GCPRODCGM1 P031 LABOUR 0.70 1.00
PO31 GCPRODCGM1 P031 MACOOH 1.19 1.00
GC01 RM1 149.54 0.945
GC01 RM3 4.47 0.055
TOTAL 172.45
Table 8.0
Process Order has been Created Under production version “PO32”

The Activity Price recorded in system against “PO32” is as follows
Production Version Resource Total Value Quantity
PO32 GCPRODCGM2 P032 POWER 17.00 0.040
PO32 GCPRODCGM2 P032 ADMINI 1.00 1.00
PO32 GCPRODCGM2 P032 DEPRN 1.46 1.00
PO32 GCPRODCGM2 P032 LABOUR 1.00 1.00
PO32 GCPRODCGM2 P032 MACOOH 1.50 1.00
GC01 RM2 152.00 0.930
GC01 RM4 5.50 0.075
TOTAL 177.51
Table 9.0
After Settlement (For 1000 TO of FG1) entries will be in the following
16 of 22 31/12/2017, 8:05
sequence;
Production Target Actual

Resource Variance
Version Value Value
GCPRODCGM1 P031
PO31 15,050.00 0.00 15,050.00
POWER
GCPRODCGM1 P031
PO31 500.00 0.00 500.00
ADMINI
GCPRODCGM1 P031
PO31 1,000.00 0.00 1,000.00
DEPRN
GCPRODCGM1 P031
PO31 700.00 0.00 700.00
LABOUR
GCPRODCGM1 P031
PO31 1,190.00 0.00 1,190.00
MACOOH
GC01 RM1 149,540.00 0.00 149,540.00
GC01 RM3 4,470.00 0.00 4,470.00
GCPRODCGM2 P032
PO32 0.00 17,000.00 (17,000.00)
POWER
GCPRODCGM2 P032
PO32 0.00 1,000.00 (1,000.00)
ADMINI
GCPRODCGM2 P032
PO32 0.00 1,460.00 (1,460.00)
DEPRN
GCPRODCGM2 P032
PO32 0.00 1,000.00 (1,000.00)
LABOUR
GCPRODCGM2 P032
PO32 0.00 1,500.00 (1,500.00)
MACOOH
GC01 RM2 0.00 152,000.00 (152,000.00)
GC01 RM4 0.00 5,500.00 (5,500.00)
TOTAL (7,910)
Table 10.0
Here if we see the total variance of POWER = 15,050 + (17,000)

= (1,950.00)
Similarly for all the Material and resources.
In order to avoid the Over head Variance input same activity price for
all the production versions,

i. i.e. the net difference will be then POWER = 17,000 + (17,000)
=0
17 of 22 31/12/2017, 8:05
Let us see a LIVE Process Order

Example:
Example
Product : FG1
Standard Cost Estimate Released for Production Version “PO31“
Table
11.0
Material Recipee for FG1 (CK13N)
Production Version Resource Total Value Fixed Value Quantity
PO31 POWER 15.05 15.05 0.035
PO31 ADMINI 0.50 0.00 1.00
PO31 DEPRIN 1.00 0.00 1.00
PO31 LABOUR 0.70 0.00 1.00
PO31 MACOOH 1.19 0.00 1.00
RM1 149.54 32.69 0.945
RM3 4.47 0.00 0.055
TOTAL 172.45 47.74
Figur 5.0
Process Order is Created under production Version “PO32“

When a Process order is created for Material FG1 system calculates
Planned cost as follows;
Quantity Produced -> 25,302.00 TO

Use the same calculation logic used in Table 1.0;
Resource Quantity Amount
RM1 23,910.39 3,783,661.17
RM3 13,916.10 1,130,999.021
ADMIN 25,302.00 12,651.00
LABOR 25,302.00 17,711.40
DEPRIN 25,302.00 25,302.00
MACOOH 25,302.00 30,109.38
POWER 885,570.00 380,795.10
Table 12.0
Planned Cost for Producing 25,302.00 TO of FG1
18 of 22 31/12/2017, 8:05
Figure 6.0
Process Order has been created in Production version “PO32“. During

Confirmation System calculates actual cost as follows;
Figure 7.0
d) Total Planned Quantity and Actual Produced Quantity Difference
We came across this production order variance in few process orders

only. While doing final confirmation of process orders user made
mistake by not allowing system to re calculate the activity prices.

Material: FG1
Total Process Order Quantity: 93,000 TO
Quantity Produced: 8,865.00 TO
The total quantity produced is 8,865.00 TO against which the activities

booked are;
Activity Quantity Amount
LABOR 8,865 * 2 DH / TON 17,730.00
DEPRIN 8,865 * 1 DH / TON 8,865.00
MACOOH 8,865 * 0.74 DH / TON 6,560.10
ADMIN 8,865 * 1 DH / TON 8,865.00
POWER 8,865 * 0.03 * 1000 265,950.00
TOTAL 42,020.10
Table 13.0
Since during final confirmation of the Order, re calculation of activities

were bypassed (by user) system calculated the activities against the
production order as below;
LABOR 93,000 * 2 DH / TON 186,000.00
DEPRIN 93,000 * 1 DH / TON 93,000.00
MACOOH 93,000 * 0.74 DH / TON 68,820.00
19 of 22 31/12/2017, 8:05
ADMIN 93,000 * 1 DH / TON 93,000.00
POWER 2,857,172.00 (User Entered) 1,228,583.96
TOTAL 440,820.00
Table 14.0
A Variance of 440,820.00 – 42,020.00 = 39,880.00 TO was posted

against all the activities
Figure 9.0
Note: While doing final confirmation ensure that all the activity prices
are recalculated as per the new output.
e) Variance Due to Price change

Price change of material due to execution of standard cost estimate will
be posted with document type “PR“
3) How to reduce variance
For reducing production order variance

a) Material BOM should be up to date;
User should not be modifying the material quantity manually while
confirmation (COR6N)
b) Activity Price should be Updated periodically

c) Confirm activity getting booked while doing final confirmation
d) Try to ensure that process order for Finished Good is created on

the same production version released in standard cost estimate.
4) Impact of the variance on COGM, COGS, Closing Stock
Variances posted with document type “SA”, “AB”, should have been part
of COGM, COGS and Closing Stock. Because of variance material

movement cannot be analysed correctly, material value can either
Overestimated or under estimated. In order to figure out how much
portion of variance should be allocated to COGM,COGS & closing stock
We are following manual calculation.

Step1: List down all the Semi Finished and Finished Goods.
Step 2: Record total variance posted against each material (FBL3N)

(Document type “SA” & “AB”)
Step 3: Record total quantity produced (MB5B with movement types
101 & 102)
20 of 22 31/12/2017, 8:05
Step4: Variance Per Ton = Step3 / Step 2

Step5: Record closing stock of Material (MB5B)
Step6: Closing Stock Variance Allocation = Step5 * Step4
Step7: Record COGM Quantity (MB5B with movement type 201 + 202
& 261 + 262)
Step8: COGM Variance Allocation = Step7 * Step4
Step9: Record COGS Quantity (MB5B with movement type 601 + 602)
Step10: COGS Variance Allocation = Step9 * Step4
Closing Closing COGS

Production Variance COGM COGS
Variance Stock Stock Qty
Qty / Ton Variance Variance
Material Qty Variance
Step 2 Step
Step 3 Step 4 Step 8 Step 10
Step 5 Step 6 9
COGM
VT1 =
MATERIAL1 V1 P1 C1 C1 * VT1 Qty * S1 S1 * VT1
P1 / V1
VT1
COGM
VT2 =
P2 / V2
VT2
COGM
VT3 =
P3 / V3
VT3
Table 15.0
Few Important Document Types Posted in Production Order Variance
GL are;
AB -> Reversal of Production Order Settlement
SA -> Production Order Settlement

PR -> Price Change
WA -> Confirmation Reversal (If Price Changed after Confirmation)
WL -> Sales Reversal (If Price Changed after Sales)
Figure 10.0
Few Important Transaction Codes
KKBC_ORD
KOB1
KOC4
21 of 22 31/12/2017, 8:05
FBL3N
CK13N
CK11N
CK24
MB5B
MB51
Reference: Production Variance Analysis in SAP Controlling By John
Jordan, Published by SAP Galileo PresAlso refer s
Also Refer: http://scn.sap.com/community/erp/manufacturing-pp/blog
/2012/03/27/understanding-production-order-variance–part-2-price-
difference-variance
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Production Order Variance SAP

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Understanding Production Order Variance – Part 2 The SAP Perspective... https://blogs.sap.com/2012/03/13/understanding-production-order-vari...

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Understanding Production Order Variance

Ranjit Simon John

MAN Production Planning (PP)

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Understanding Production Order

Author: Ranjit Simon John

Every PP, FI and CO user in any Manufacturing Industry will be having

explained & investigated thoroughly. Major questions arising will be;

Answering these will be really tough.

Now let us examine the main points under

3.1.1 Goods Issue to Production Order:

When goods are issued from inventory, a general ledger

in CO during initial system implementation. When the system detects a

GL entry during Goods Issue

Raw Material Consumption XXX

Stock of Raw Material XXX

3.2 Secondary Cost:

The costs in CO are allocated from overhead cost centers to

to production cost centers.

Primary Credits occur when production orders deliver Finished /

standard price by the quantity delivered to inventory.

Stock of Finished Good XXX

COGM of Finished Good XXX

Raw Material Consumption XXX

Stock of Raw Material XXX

3.4 Secondary Credit

At period end the production order receives a secondary credit that is

equal to the variance during settlement, resulting in zero balance.

100 Raw Material

Debit 100 Labor

100 Over Heads

Credit (250) Finished Good

Variance calculation at period end divides the variance into categories,

Production Variance settled to CO-PA are included at the gross profit

3.5) Post Actual Costs

1) Period – End Processing

5.1 The three common types of variance calculation are as follows;

Total variance is the difference between the actual

Production variance is the difference between net actual

cost estimate and quantity delivered to inventory.

Planning variance is the difference between costs on the

standard cost estimate and planned order quantity.

During variance calculation, the order balance is divided into

Variance based on Goods Issue, Internal activity allocation,

overhead allocation, general ledger account postings.

variance calculation, according to their source:

the higher level material cost

Input price variance = (actual price – plan price) * actual input

another component with a different

Resource Usage variance = Actual costs –target costs – Input

Category IV.3) Input quantity variance

and activities consumed.

quantity) * plan price

assigned to any other variance

5.2.2) Output Variance is divided into;

Mixed-Price variance occurs when inventory is valuated using a

1) If the standard price is changed after delivery to inventory,

and before variance calculation.

Occurs if variance cannot be assigned to any other variance

Category OV.5) Output Quantity Variance

and allocated actual quantities.

Variance can be calculated using the formula;