variance

7/18/2019 Variance

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Ever ""# $% and CO &ser 'n an (an&)act&r'ng %nd&str *'++ ,e hav'ng a to&gh t'me *h'+eprocess'ng month-end act'v't'es. "rod&ct'on Order ar'ance posted aga'nst each process

orders *'++ have to ,e eam'ned# ep+a'ned 'nvest'gated thoro&gh+. (aor &est'ons ar's'ng*'++ ,e2

• Or'g'n o) ar'ance has come

• o* to Categor'e the var'ance

• o* to c&t do*n the var'ance.

• %mpact o) var'ance on CO(# CO C+os'ng toc.

ns*er'ng these *'++ ,e rea++ to&gh.

e have )aced a++ these scenar'os and a)ter months o) deep research 'n th's )'e+d % cameacross )e* conc+&s'ons.

$or ,etter &nderstand'ng % *'++ d'v'de th's ,+og 'nto t*o categor'es2

• Categor : as'c &nderstand'ng o) "rod&ct'on Order

• Categor : Co-re+at'ng Categor scenar'os *'th rea+ +')e scenar'os.

Now let us examine the main points under Category A:

;he &+t'mate end po'nt o) an 'nd&str 's sa+es. $or se++'ng the prod&ct severa+ process has to

,e carr'ed o&t. ;he s&ccess o) an management depends on ho* *e++ the )orecast the sa+es#p+an and sched&+es the act'v't'es.





7/18/2019 Variance


Figure 1.0

<et &s d'v'de the process as g'ven ,e+o*2

1= %n't'a+ "+ann'ng

>= Cost Est'mates

3= ct&a+ "ost'ng

4= "er'od ? End "rocess'ng

1= %n't'a+ "+ann'ng:

$orecast'ng the sa+es )or )&t&re. a+es and Operat'on "+ann'ng# <ong term p+ann'ng# Cost

center p+ann'ng sho&+d ,e *e++ eec&ted , the management.

>= Cost Est'mates:

;he maor po'nts to ,e cons'dered here are2

a= a= (aster Data:

a.1= (ater'a+ (aster:

++ the re&'red 'n)ormat'on to manage a mater'a+.

;ransact'on Codes: ((01# ((0># ((03

a.>= '++ o) (ater'a+ @O(=:

tr&ct&red h'erarch o) ra* mater'a+s necessar to create a $'n'shed / em' $'n'shed

ood.

;ransact'on Codes: C01# C0># C03

a.3= Ao&t'ng:

<'st o) tass conta'n'ng standard act'v't t'mes re&'red to per)orm operat'ons tocreate a $'n'shed / em' $'n'shed ood.

;ransact'on Codes: C01# C0># C03

a.4= "rod&ct Cost Co++ector:

Co++ects act&a+ costs d&r'ng the prod&ct'on o) a mater'a+.

;ransact'on Codes: BB$6

a.5= Aec'pe:

Recipes comprise information about the products and components of a process, theprocess steps to be executed, and the resources required for the production.

;ransact'on Codes: C>01# C>0># C>03

7/18/2019 Variance


,= Overhead Costs:

++ 'nd'rect cost +'e po*er# canteen etc.

;ransact'on Codes: B>

,.1= Ca+c&+at'on ase:

,ase 's a gro&p o) cost e+ements to *h'ch overhead 's app+'ed

,.>= Overhead Aate:

Overhead rate 's a percentage )actor app+'ed to the va+&e o) the ca+c&+at'on ,ase@gro&p o) cost e+ements=.

,.3= Cred't Be

D&r'ng Overhead ca+c&+at'on# a man&)act&r'ng order 'n prod&ct cost co++ector 's de,'ted#and a cost center 's cred'ted. ;he cred't e de)'nes *h'ch cost center rece'ves the cred't.

C = Cost Component:

;he cost component sp+'t a++o*s a cost est'mate to gro&p costs o) s'm'+ar tpes o)components# s&ch as mater'a+# +a,or# and overhead.

d= Cost'ng ar'ant:

;he cost'ng var'ant conta'ns 'n)ormat'on on ho* a cost est'mate ca+c&+ates the standard pr'ce.

e= tandard Cost Est'mate:

;he tandard Cost Est'mate 's 'nvo+ved 'n var'ance ana+s's ,eca&se 't 's &sed )or stocva+&at'on. hen a prod&ct'on or process order de+'vers prod&ct'on to 'nventor# 't rece'ves a

credit ,ased on standard price. ;ota+ var'ance 's the d'))erence ,et*een act&a+ costs de,'ted

to the order and costs cred'ted to the order d&e to de+'ver'es to stoc.

)= "re+'m'nar Cost Est'mate:

;he "re+'m'nar Cost Est'mate 's 'nvo+ved *'th prod&ct'on# var'ance ca+c&+at'on and va+&at'ng scrapvar'ance and %".

g= ('ed Cost Est'mate:

%) there are d'))erent proc&rement a+ternat'ves )or the same mater'a+# s&ch as t*o prod&ct'on

+'nes or t*o vendors# m'ed cost'ng can ,e &sed *hen 'nventor va+&at'on has to re)+ect them'ed proc&rement costs.

3= ct&a+ "ost'ngs

"+an costs are posted prior to a )'sca+ per'od. ct&a+ costs are posted 'n rea+ t'me during a

)'sca+ per'od.

ct&a+ Cost can ,e d'v'ded 'nto t*o gro&ps ,ased on the post'ng or'g'n2

• "ost'ngs to CO )rom external ,&s'ness transact'ons res&+ts 'n "r'mar Costs.

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• &s'ness transact'ons within CO res&+ts 'n econdar Costs.

3.1 "r'mar Cost:

"r'mar cost *'++ ,e posted to CO ma'n+ 'n the )o++o*'ng scenar'os:

3.1.1 oods %ss&e to "rod&ct'on Order:

hen goods are 'ss&ed )rom 'nventor# a genera+ +edger ,a+ance sheet acco&nt 's

cred'ted# and pro)'t and +oss cons&mpt'on @epense= acco&nt 's de,'ted. pr'mar coste+ement *'th the same n&m,er and 'dent')'er as the 'nventor cons&mpt'on 's &s&a++ created

'n CO d&r'ng 'n't'a+ sstem 'mp+ementat'on. hen the sstem detects a correspond'ngpr'mar cost e+ement 'n CO d&r'ng a post'ng to enera+ +edger epense acco&nt# a post'ng to

CO cost o,ect 's a+so re&'red.

"r'mar Cost are posted to CO )rom $%.

< entr d&r'ng oods %ss&e

Debit Credit

Raw Material Consumption XXX

toc! of Raw Material XXX

"able 1.0

3.> econdar Cost:

;he costs 'n CO are a++ocated )rom overhead cost centers to prod&ct'on cost centersd&r'ng assessment and then onto prod&ct'on order d&r'ng activity confirmation.

3.>.1 ssessment

"er'od-end assessments move costs )rom overhead cost centers to prod&ct'on costcenters.

3.>.> ct'v't Con)'rmat'on:

hen prod&ct'on order act'v't'es are con)'rmed# the prod&ct'on or prod&ct cost co++ector

's de,'ted# and the prod&ct'on cost center 's cred'ted. ;here are no $% post'ngs d&r'ng act'v't

con)'rmat'on.

3.3 "r'mar Cred'ts

"r'mar Cred'ts occ&r *hen prod&ct'on orders de+'ver $'n'shed / em' )'n'shed good

'nto 'nventor.

s )'n'shed goods are de+'vered )rom man&)act&r'ng order 'nto 'nventor# an 'nventor

,a+ance sheet acco&nt 's de,'ted# and pro)'t and +oss prod&ct'on o&tp&t acco&nt 's cred'ted.

eca&se there 's a pr'mar cost e+ement correspond'ng to the prod&ct'on o&tp&t acco&nt# aCO o,ect 's a+so cred'ted. ;he )'n'shed goods are de+'vered )rom a prod&ct'on order# so the

sstem a&tomat'ca++ chooses the prod&ct'on order or prod&ct cost co++ector to rece've the

pr'mar cred't.

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;he cred't va+&e 's ca+c&+ated , m&+t'p+'ng the )'n'shed goods standard pr'ce , the&ant't de+'vered to 'nventor.

Debit Credit

toc! of Finished #ood XXX

C$#M of Finished #ood XXX



;a,+e >.0

3.4 econdar Cred't

t per'od end the prod&ct'on order rece'ves a secondar cred't that 's e&a+ to the var'ance

d&r'ng sett+ement# res&+t'ng 'n ero ,a+ance.

D&r'ng the sett+ement process# prod&ct cost co++ectors and process order var'ance are posted

to "ro)'ta,'+'t na+s's @CO-"= and $%.

%ebit

100 Raw Material

100 &abor

100 $'er (eads

Credit )*+0 Finished #ood

-alance +0 ariance

"able /.0

"otal ariance is the difference between total production order debits and credits.

ar'ance ca+c&+at'on at per'od end d'v'des the var'ance 'nto categor'es# ,ased on the so&rce o) the var'ance.

"rod&ct'on ar'ance sett+ed to CO-" are 'nc+&ded at the gross profit marg'n +eve+.

Cost Center &nder/over a,sorpt'on costs assessed to CO-" are 'nc+&ded at the operating

profit +eve+.

3.5= "ost ct&a+ Costs

1= "er'od ? End "rocess'ng

5.1 ;he three common tpes o) var'ance ca+c&+at'on are as )o++o*s2

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5.1.1= ;ota+ ar'ance

;ota+ var'ance 's the d'))erence ,et*een the act&a+ cost de,'ted to the order

and cred'ts )rom de+'ver'es to 'nventor. ;ota+ ar'ance 's var'ance re+evant to sett+ement. ;hevar'ance 's sett+ed 'n $'nanc'a+ cco&nt'ng @$%=# "ro)'t Center cco&nt'ng and "ro)'ta,'+'t

na+s's

5.1.>= "rod&ct'on ar'ance

"rod&ct'on var'ance 's the d'))erence ,et*een net act&a+ costs de,'ted to theorder and target costs ,ased on the pre+'m'nar cost est'mate and &ant't de+'vered to

'nventor.

"rod&ct'on var'ance 's not re+evant )or sett+ement# on+ )or 'n)ormat'on.

5.1.3= "+ann'ng ar'ance

"+ann'ng var'ance 's the d'))erence ,et*een costs on the pre+'m'nar cost

est'mate )or the order and target costs ,ased on the standard cost est'mate and p+annedorder &ant't.

5.>= ar'ance Categor'es

D&r'ng var'ance ca+c&+at'on# the order ,a+ance 's d'v'ded 'nto categor'es on the 'np&t

and o&tp&t s'des. ar'ance categor prov'de reasons )or the ca&se o) the var'ance. ;here areno $% post'ng d&r'ng var'ance ca+c&+at'on.

ar'ance can ,e categor'ed 'nto Input Variance and Output Variance

5.2.1) Input Variance

ar'ance ,ased on oods %ss&e# %nterna+ act'v't a++ocat'on# overhead a++ocat'on#genera+ +edger acco&nt post'ngs.

%np&t var'ance 's d'v'ded 'nto the )o++o*'ng categor'es d&r'ng var'ance ca+c&+at'on#

accord'ng to the'r so&rce:

Category IV.1) Input Price Variance

%np&t pr'ce var'ance occ&rs as a res&+t o) mater'a+ pr'ce change a)ter the h'gher +eve+ mater'a+

cost est'mate 's re+eased.

%t occ&rs 'n an o) the ,e+o* ment'oned scenar'os2

• %) the mater'a+ va+&at'on 's ,ased on standard price contro+# a standard cost

est'mate )or the component co&+d ,e re+eased a)ter the cost est'mate )or the assem,+ 'sre+eased.

• %) the mater'a+ va+&at'on 's ,ased on Moving average pr'ce contro+# a goods

rece'pt o) the component co&+d change the component pr'ce a)ter the cost est'mate )or themater'a+ 's re+eased.

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

Category IV.2) esource ! "sage Variance

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Aeso&rce ? sage var'ance occ&rs as a res&+t o) s&,st't&t'ng components. ;h's co&+d occ&r ')a component 's not ava'+a,+e# and another component *'th a d'))erent mater'a+ n&m,er 's

&sed 'nstead.

Resource Usage variance = Actual costs –target costs – Input price variance

Category IV.#) Input $uantity variance

%np&t &ant't var'ance occ&rs as a res&+t o) a d'))erence ,et*een p+an and act&a+ &ant't'es

o) mater'a+s and act'v't'es cons&med.

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

price

Category IV.%) emaining Input Variance

hen 'np&t var'ance cannot ,e ass'gned to an other var'ance categor. 5.>.>= O&tp&tar'ance

ar'ance can ,e )rom too +'tt+e or too m&ch o) p+anned order &ant't ,e'ng de+'vered# or

,eca&se the de+'vered &ant't *as va+&ated d'))erent+.

5.2.2) Output Variance is divided into;

Category &V.1) Mixed ! Price Variance

('ed-"r'ce var'ance occ&rs *hen 'nventor 's va+&ated &s'ng a m'ed cost est'mate)or the mater'a+.

Category &V.2) &utput Price Variance

O&tp&t pr'ce var'ance can occ&r 'n the )o++o*'ng scenar'os2

1= %) the standard pr'ce 's changed a)ter de+'ver to 'nventor# and ,e)ore var'ance

ca+c&+at'on.

>= %) the mater'a+ 's va+&ated at mov'ng average pr'ce and 't 's not de+'vered to'nventor at standard pr'ce d&r'ng target va+&e ca+c&+at'on.

Output price variance = actual activity * (plan price – actual price)

Category &V.#) 'ot (ie Variance

<ot 'e var'ance occ&rs ') a man&)act&r'ng order +ot s'e 's d'))erent )rom the standardcost est'mate cost'ng +ot s'e.

Categor O.4= Aema'n'ng ar'ance

Occ&rs ') var'ance cannot ,e ass'gned to an other var'ance categor.

Categor O.5= O&tp&t F&ant't ar'ance

Aepresents the d'))erence ,et*een man&a++ entered act&a+ costs and a++ocated act&a+

&ant't'es.

7/18/2019 Variance


Output Quantity variance = ( actual quantity –manual actual quantity) * plan price

5.3= "er'od End

;he most 'mportant per'od-end process re+evant to prod&ct'on order var'ance ana+s's

's2

• Overhead

• %"

• ar'ance Ca+c&+at'on

ar'ance can ,e ca+c&+ated &s'ng the )orm&+a2

Variance = Actual Cost – Actual Cost Allocate (creits) – !I" – #crap

D&r'ng var'ance ca+c&+at'on# target and contro+ costs are compared# and var'ance categor'es

are ass'gned. ar'ance categor'es are ass'gned 'n the )o++o*'ng se&ence:

• %np&t pr'ce var'ance

• Aeso&rce ? &sage var'ance

• %np&t &ant't var'ance

• Aema'n'ng 'np&t var'ance

• ('ed ?pr'ce var'ance

• O&tp&t pr'ce var'ance

• <ot 'e ar'ance

• Aema'n'ng ar'ance

ett+ement

ettlement of roduction $rders will be executed.

2$33 4 5ndi'idual ettlement

C$33 4 Collecti'e ettlement

Now let us examine the main points under Category $:

o* o& *'++ ,e hav'ng a ,as'c 'dea a,o&t prod&ct'on order var'ance # var'ance ca+c&+at'on

tpes var'o&s categor'es. o* +et &s tr to co-re+ate th's *'th rea+ +')e scenar'os.

% *'++ d'v'de the top'c 'nto ,e+o* ment'oned sect'ons2

1. o* to ana+e prod&ct'on order var'ance posted aga'nst prod&ct'on orders

>. (aor Aeasons )or the var'ance

3. o* to m'n'm'e the var'ance

4. %mpact o) prod&ct'on order var'ance on CO(# CO C+os'ng toc

7/18/2019 Variance


Cateor! ".1) #ow to anal!$e variance posted aainst production order

$or ep+a'n'ng the scenar'os % am ta'ng one em' $'n'shed ood @#%&'? em' $'n'shed ood

1= *h'ch 's &sed as a ra* mater'a+ )or prod&ct'on o) $'n'shed ood.

(aster Aec'pe o) $1 's2

Item Resource Total Value Fixed Value Quantity Unit

1 $67R 1*.80 1*.80 0.0/0 M6(

* 9%M5:5 1.00 0.00 1.00 "$

/ %7R5: 1.00 0.00 1.00 "$

; &9-$<R *.00 0.00 1.00 "$

+ M9C$$( 0.=; 0.00 1.00 "$

> R96M9"7R59&1 3.10 0.00 0.31 "$

= R96M9"7R59&* 1.;8 0.00 0.0>1 "$

3 R96M9"7R59&/ 1.3/ 0.00 0.10/ "$

8 R96M9"7R59&; 0.1* 0.00 0.00* "$

10 R96M9"7R59&+ ;./1 0.00 0.0*; "$

"$"9& //.;8 1*.80

$'g&re >.0

"rocess order o )or $1 's 15000035

ar'ance "osted aga'nst the "rocess Order )or the month 's ''+,-. A/0

)ter techn'ca++ comp+et'ng @G%&COG= the process order ,e)ore eec&t'ng cost'ng r&n chec)or the var'ance 'n transact'on code BO88 @CO88 - Co++ect've= 'n ;est A&n mode.

$or ana+'ng the var'ance 'n deta'+ *e *'++ &se transact'on codes BBCHOAD BO1.

<et me ep+a'n d'))erence ,et*een BBCHOAD and BO1.

BBCHOAD 's &sed )or ana+'ng s'ng+e order. "+anned and ct&a+ cost deta'+s re+at'ng to theprod&ct'on order *'++ ,e recorded 'n BBCHOAD.

BO1 o& can eec&te )or s'ng+e as *e++ as ,&+ order. BO1 prov'des the G *ctual G va+&es@cost &ant't= o) ra* mater'a+s and overheads &sed )or the prod&ct'on o) the mater'a+.

BBCHOAD

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$'g&re 3.0

BO1

$'g&re 4.0

ere o& can see sett+ement @ar'ance= o) ''+,-. A/0-

% *'++ ep+a'n ho* *e are ca+c&+at'ng the var'ance.

e+o* ta,+e sho*s the )orm&+a &sed )or ar'ance Ca+c&+at'on.

++ the td. Aate# td. Ft# td. Cost va+&e )'e+ds 'n ;a,+e 4.0 are ca+c&+ated ,ased on themaster deta'+s @(ater'a+ Aec'pe $'g&re >.0=.

++ the ct&a+ Aate# ct&a+ Ft. ct&a+ Cost va+e )'e+ds 'n ta,+e 4.0 are etracted )rom BO1.

7/18/2019 Variance


Cost Elements

Std. Rate

(Figure

.!"

Std. Qty.

(Figure .!"Std. Cost

#ctual

Rate

#ctual Qty.

(Figure $.!"

#ctual Cost

(Figure $.!"Variance

R96M9"7R59&1

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA ;8,>>/.00 ;8>,>/0.00

td Cost 4

9ct Cost

R96M9"7R59&*

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA /,;11.00 38,3*;.;+

td Cost 4

9ct Cost

R96M9"7R59&/

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA +,=83.00 10;,1>*.3

td Cost 4

9ct Cost

R96M9"7R59&;

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA 1,00/.00 *08,3+3.81

td Cost 4

9ct Cost

R96M9"7R59&+

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA 8.00 +1=.+=

td Cost 4

9ct Cost

R96M9"7R59&>

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA *1.00 =/+.00

td Cost 4

9ct Cost

&abor

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA +8,800.00 118,300.00

td Cost 4

9ct Cost

%epriciation

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA +8,800.00 +8,800.00

td Cost 4

9ct Cost

9dministration

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA +8,800.00 +8,800.00

td Cost 4

9ct Cost

M9C$$(

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA +8,800.00 ;;,/*>.00

td Cost 4

9ct Cost

$67R

"otal 'alue

? @tA

er "on @tA B

F# rd. @tA

td @tA B

td Rate

9ct Cost ?

9ct @tA

1,>08,=30.0

0 >8*,*0+.;

td Cost 4

9ct Cost

F5:5(7%

#$$% +8,800.00

*,00>,0+1.0

0

"able ;.0

:ow let us fill in 'alues in "able +.0 with the production order 'alues.

Cost Elements

Std. Rate

(Figure .!"

Std. Qty.

(Figure .!"

Std. Cost #ctual Rate

#ctual Qty.

(Figure $.!"

#ctual Cost

(Figure $.!"

Variance

R96M9"7R59&1 10.00 ;3,+18.00 ;3+,180.00 10.00 ;8,>>/.00 ;8>,>/0.00 )11,;;0.00

R96M9"7R59&* *;.;*>* /,>+/.8 38,*+0.38 *>.///3 /,;11.00 38,3*;.;+ )+=/.;+

7/18/2019 Variance


Cost Elements

Std. Rate

(Figure .!"

Std. Qty.

(Figure .!"

Std. Cost #ctual Rate

#ctual Qty.

(Figure $.!"

#ctual Cost

(Figure $.!"

Variance

R96M9"7R59&/ 1=.=>=0 >,1>8.= 108,>1=.00 1=.8>+/ +,=83.00 10;,1>*.30 +,;+;.*0

R96M9"7R59&; 1=8.+3// 1,;/=.> *+3,1>8.00 *08.*/1* 1,00/.00 *08,3+3.81 ;3,/10.08

R96M9"7R59&+ >0.00 118.3 =,133.00 +=.+0=3 8.00 +1=.+= >,>=0.;/

R96M9"7R59&> 00.00 0.00 0.00 /+.00 *1.00 =/+.00 )=/+.00

&abor *.00 +8,800.00 118,300.00 1.00 +8,800.00 118,300.00 0.00

%epriciation 1.00 +8,800.00 +8,800.00 1.00 +8,800.00 +8,800.00 0.00

9dministration 1.00 +8,800.00 +8,800.00 1.00 +8,800.00 +8,800.00 0.00

M9C$$( 0.=; +8,800.00 ;;,/*>.00 0.=; +8,800.00 ;;,/*>.00 0.00

$67R 0.;/ 1,=8=,000.00 ==*,=18.00 0.;/ 1,>08,=30.00 >8*,*0+.; 30,+0;.>

F5:5(7% #$$% //.;8 +8,800.00 *,00>,0+1.00

T%T#& ')'*!.+

;a,+e 5.0

o* +et &s categor'e the var'ance.

ar'ance has ,een posted 'n the )o++o*'ng order

Serial ,o Cost Element Variance Variance Category Variance Class

RM1 R96M9"7R59&1 )11,;;0.00 CategorA 5./ C1

RM* R96M9"7R59&* )+=/.;+ CategorA 5./ CategorA 5.1 C*

RM/ R96M9"7R59&/ +,;+;.*0 CategorA 5./ CategorA 5.1 C*

RM; R96M9"7R59&; ;3,/10.08 CategorA 5./ CategorA 5.1 C*

RM+ R96M9"7R59&+ >,>=0.;/ CategorA 5./ CategorA 5.1 C*

RM> R96M9"7R59&> )=/+.00 CategorA 5.* C/

$(1 ower 30,+0;.> CategorA 5./

"able >.0

<et &s tr to ca+c&+ate ar'ance , app+'ng $orm&+a )or each categor.

Cateor! IV.1: %np&t "r'ce ar'ance I @ct&a+ "r'ce ? "+an "r'ce= J ct&a+ %np&t F&ant't

Cateor! IV.2: Aeso&rce sage ar'ance ? ct&a+ Cost ? ;arget Cost ? %np&t "r'ce ar'ance

Cateor! IV.': %np&t F&ant't ar'ance I @ct&a+ %np&t F&ant't ? ;arget %np&t F&ant't= J"+an "r'ce

7/18/2019 Variance


Cost Elements

-lan

-rice

Target Inut

Qty

Target

Cost

#ctual

-rice

#ctual

Inut Qty

#ctual

Cost

Varianc

e Class Variance

R96M9"7R59&1 10.00 ;3,+18.00

;3+,180.0

0 10.00 ;8,>>/.00

;8>,>/0.0

0 C1 11,;;0.00

R96M9"7R59&* *;.;*>* /,>+/.80 38,*+1.00 *>.///3 /,;11.00 30,3*;.;+ C* +=/.;+

R96M9"7R59&/ 1=.=>=0 >,1>8.=0

108,>1=.0

0 1=.8>+/ +,=83.00

10;,1>*.3

0 C* )+,;+;.*+

R96M9"7R59&;

1=8.+3/

/ 1,;/=.>

*+3,1>8.0

0

*08.*/1

* 1,00/.00

*08,3+3.8

1 C* );3,/10.08

R96M9"7R59&+ >0.00 118.30 =,133.00 +=.+0=3 8.00 +1=.+= C* )>,>=0.;/

R96M9"7R59&> 0.00 0.00 0.00 /+.00 *1.00 =/+.00 C/ =/+.00

ower 0.;/1,=8=,000.00

==*,=10.00 0.;/

1,>08,=30.00 >8*,*0+.; C1 )30,+0;.>

T%T#&

(')'*!.+

"

"able =.0

Cateor! ".2) (aor *easons +or the variance

$rom ( eper'ence % can po'nt o&t that "rod&ct'on order var'ance occ&r ma'n+ )rom2

a= (ater'a+ O( not &pdated proper+ @Category IV-1=

,= (ater'a+ "r'ce Change a)ter re+ease o) tandard Cost Est'mate @Category IV-'=

c= ct'v't "r'ce @(ater'a+ Aec'pe= not &pdated proper+ @Category IV-=

d= tandard Cost est'mate re+eased )or one prod&ct'on vers'on and con)'rmat'on done aga'nst

another prod&ct'on order. @Category OV-1=

e= ;ota+ "+anned F&ant't and ct&a+ "rod&ced F&ant't D'))erence @Category IV-2=

)= (ater'a+ &sed not 'nc+&ded 'n O( @@Category IV-=

<et &s tr to ana+e a++ the scenar'os.

a= (ater'a+ O( not &pdated proper+

Ep+a'ned 'n Cateor! ".1

,= ct'v't "r'ce @(ater'a+ Aec'pe= not &pdated proper+

Ep+a'ned 'n Cateor! ".1

;ota+ "OEA cons&mpt'on as per BO1 @ct&a+ as per (ater'a+ Aec'pe= and $<3 sho&+d ,eappro'mate+ e&a+.

7/18/2019 Variance


BO1 -K "OEA cons&mpt'on )or the (ater'a+s "rod&ced

$<3 -K ct&a+ "OEA rece'pt report

@Aece'pt I Cons&mpt'on=

c= tandard Cost est'mate re+eased )or one prod&ct'on vers'on and con)'rmat'on doneaga'nst another prod&ct'on order.

Cost'ng r&n eec&ted )or one "rod&ct'on ers'on and "rocess Order created aga'nst another

prod&ct'on vers'on.

<et &s tae one eamp+e *here t*o prod&ct'on vers'ons are present "rod&ct'on ers'on 1 and

"rod&ct'on ers'on > )or $'n'shed ood ,-1. "rod&ct'on ers'on 1 *'++ ,e &s'ng *(1 as ra*mater'a+ and prod&ct'on vers'on > *'++ ,e &s'ng *(2 as ra* mater'a+.

tandard cost est'mate 's re+eased aga'nst "rod&ct'on vers'on 1.

<et me ep+a'n *'th an eamp+e2

s per Ae+eased tandard Cost Est'mate (ater'a+ rec'pe / ;on o) ,-1

-roduction Version Resource Total Value Quantity

$/1 C"AODC(1 "031 "OEA 1+.0+ 0.0/+

$/1 C"AODC(1 "031 D(%% 0.+0 1.00

$/1 C"AODC(1 "031 DE"A 1.00 1.00

$/1 C"AODC(1 "031 <OA 0.=0 1.00

$/1 C"AODC(1 "031 (COO 1.18 1.00

C01 A(1 1;8.+; 0.8;+

C01 A(3 ;.;= 0.0++

"$"9& 1=*.;+

"able 3.0

"rocess Order has ,een Created nder prod&ct'on vers'on LO'2M

;he ct'v't "r'ce recorded 'n sstem aga'nst LO'2M 's as )o++o*s


$/* C"AODC(> "03> "OEA 1=.00 0.0;0

$/* C"AODC(> "03> D(%% 1.00 1.00

$/* C"AODC(> "03> DE"A 1.;> 1.00

$/* C"AODC(> "03> <OA 1.00 1.00

$/* C"AODC(> "03> (COO 1.+0 1.00

7/18/2019 Variance



C01 A(> 1+*.00 0.8/0

C01 A(4 +.+0 0.0=+

"$"9& 1==.+1

"able 8.0

)ter ett+ement @$or 1000 ;O o) $1= entr'es *'++ ,e 'n the )o++o*'ng se&ence2

-roduction Version Resource Target Value #ctual Value Variance

$/1 C"AODC(1 "031 "OEA 1+,0+0.00 0.00 1+,0+0.00

$/1 C"AODC(1 "031 D(%% +00.00 0.00 +00.00

$/1 C"AODC(1 "031 DE"A 1,000.00 0.00 1,000.00

$/1 C"AODC(1 "031 <OA =00.00 0.00 =00.00

$/1 C"AODC(1 "031 (COO 1,180.00 0.00 1,180.00

C01 A(1 1;8,+;0.00 0.00 1;8,+;0.00

C01 A(3 ;,;=0.00 0.00 ;,;=0.00

$/* C"AODC(> "03> "OEA 0.00 1=,000.00 )1=,000.00

$/* C"AODC(> "03> D(%% 0.00 1,000.00 )1,000.00

$/* C"AODC(> "03> DE"A 0.00 1,;>0.00 )1,;>0.00

$/* C"AODC(> "03> <OA 0.00 1,000.00 )1,000.00

$/* C"AODC(> "03> (COO 0.00 1,+00.00 )1,+00.00

C01 A(> 0.00 1+*,000.00 )1+*,000.00

C01 A(4 0.00 +,+00.00 )+,+00.00

T%T#& (+)*'!"

"able 10.0

ere ') *e see the tota+ var'ance o) "OEA I 15#050 N @17#000=

I @1#950.00=

'm'+ar+ )or a++ the (ater'a+ and reso&rces.

%n order to avo'd the Over head ar'ance 'np&t same act'v't pr'ce )or a++ the prod&ct'onvers'ons#

i. '.e. the net d'))erence *'++ ,e then "OEA I 17#000 N @17#000= I 0

<et &s see a <%E "rocess Order

Eamp+e:

7/18/2019 Variance


Examle

roduct F#1

tandard Cost 7stimate Released for roduction ersion DPO31D

"able 11.0

Material Recipee for F#1 )C21/:

roduction ersion Resource Total Value Fixed Value Quantity

$/1 $67R 1+.0+ 1+.0+ 0.0/+

$/1 9%M5:5 0.+0 0.00 1.00

$/1 %7R5: 1.00 0.00 1.00

$/1 &9-$<R 0.=0 0.00 1.00

$/1 M9C$$( 1.18 0.00 1.00

RM1 1;8.+; /*.>8 0.8;+

RM/ ;.;= 0.00 0.0++

"$"9& 1=*.;+ ;=.=;

Figur +.0

"rocess Order 's Created &nder prod&ct'on ers'on G"O1G

hen a "rocess order 's created )or (ater'a+ $1 sstem ca+c&+ates "lanne cost as )o++o*s2

F&ant't "rod&ced -K >5#30>.00 ;O

se the same ca+c&+at'on +og'c &sed 'n ;a,+e 1.02

Resource Quantity #mount

RM1 */,810./8 /,=3/,>>1.1=

RM/ 1/,81>.10 1,1/0,888.0*1

9%M5: *+,/0*.00 1*,>+1.00

&9-$R *+,/0*.00 1=,=11.;0

%7R5: *+,/0*.00 *+,/0*.00

M9C$$( *+,/0*.00 /0,108./3

$67R 33+,+=0.00 /30,=8+.10

;a,+e 1>.0

7/18/2019 Variance


"+anned Cost )or "rod&c'ng >5#30>.00 ;O o) $1

$'g&re 6.0

"rocess Order has ,een created 'n "rod&ct'on vers'on G"O1G. D&r'ng Con)'rmat'on stem

ca+c&+ates act&a+ cost as )o++o*s2

Figure =.0

d= ;ota+ "+anned F&ant't and ct&a+ "rod&ced F&ant't D'))erence

e came across th's prod&ct'on order var'ance 'n )e* process orders on+. h'+e do'ng )'na+

con)'rmat'on o) process orders &ser made m'stae , not a++o*'ng sstem to re ca+c&+ate theact'v't pr'ces.

(ater'a+: $1

;ota+ "rocess Order F&ant't: 93#000 ;O

F&ant't "rod&ced: 8#865.00 ;O

;he tota+ &ant't prod&ced 's 8#865.00 ;O aga'nst *h'ch the act'v't'es ,ooed are2

#cti/ity Quantity #mount

&9-$R 3,3>+ B * %( ? "$: 1=,=/0.00

%7R5: 3,3>+ B 1 %( ? "$: 3,3>+.00

M9C$$( 3,3>+ B 0.=; %( ? "$: >,+>0.10

9%M5: 3,3>+ B 1 %( ? "$: 3,3>+.00

7/18/2019 Variance



$67R 3,3>+ B 0.0/ B 1000 *>+,8+0.00

T%T#& $)!!.'!

"able 1/.0

'nce d&r'ng )'na+ con)'rmat'on o) the Order# re ca+c&+at'on o) act'v't'es *ere ,passed @,

&ser= sstem ca+c&+ated the act'v't'es aga'nst the prod&ct'on order as ,e+o*2


&9-$R 8/,000 B * %( ? "$: 13>,000.00

%7R5: 8/,000 B 1 %( ? "$: 8/,000.00

M9C$$( 8/,000 B 0.=; %( ? "$: >3,3*0.00

9%M5: 8/,000 B 1 %( ? "$: 8/,000.00

$67R *,3+=,1=*.00 )<ser 7ntered 1,**3,+3/.8>

"$"9& ;;0,3*0.00

"able 1;.0

ar'ance o) 440#8>0.00 - 4>#0>0.00 I 39#880.00 ;O *as posted aga'nst a++ the act'v't'es

$'g&re 9.0

ote: h'+e do'ng )'na+ con)'rmat'on ens&re that a++ the act'v't pr'ces are reca+c&+ated as per

the ne* o&tp&t.

e= ar'ance D&e to "r'ce change

"r'ce change o) mater'a+ d&e to eec&t'on o) standard cost est'mate *'++ ,e posted *'thdoc&ment tpe G* G

') #ow to reduce variance

$or red&c'ng prod&ct'on order var'ance

a= (ater'a+ O( sho&+d ,e &p to date2

7/18/2019 Variance


ser sho&+d not ,e mod')'ng the mater'a+ &ant't man&a++ *h'+e con)'rmat'on @COA6=

,= ct'v't "r'ce sho&+d ,e pdated per'od'ca++

c= Con)'rm act'v't gett'ng ,ooed *h'+e do'ng )'na+ con)'rmat'on

d= ;r to ens&re that process order )or $'n'shed ood 's created on the same prod&ct'onvers'on re+eased 'n standard cost est'mate.

/) Impact o+ the variance on CO-(0 CO-0 Closin toc

ar'ances posted *'th doc&ment tpe GG# GG# sho&+d have ,een part o) CO(# CO andC+os'ng toc. eca&se o) var'ance mater'a+ movement cannot ,e ana+sed correct+# mater'a+

va+&e can e'ther Overest'mated or &nder est'mated. %n order to )'g&re o&t ho* m&ch port'ono) var'ance sho&+d ,e a++ocated to CO(#CO c+os'ng stoc e are )o++o*'ng man&a+

ca+c&+at'on.

(tep1+ <'st do*n a++ the em' $'n'shed and $'n'shed oods.

(tep 2+ Aecord tota+ var'ance posted aga'nst each mater'a+ @$<3= @Doc&ment tpe GG

GG=

(tep #+ Aecord tota+ &ant't prod&ced @(5 *'th movement tpes 101 10>=

(tep%+ ar'ance "er ;on I tep3 / tep >

(tep,+ Aecord c+os'ng stoc o) (ater'a+ @(5=

(tep-+ C+os'ng toc ar'ance ++ocat'on I tep5 J tep4

(tep+ Aecord CO( F&ant't @(5 *'th movement tpe >01 N >0> >61 N >6>=

(tep/+ CO( ar'ance ++ocat'on I tep7 J tep4

(tep0+ Aecord CO F&ant't @(5 *'th movement tpe 601 N 60>=

(tep1+ CO ar'ance ++ocat'on I tep9 J tep4

0aterial

Variance

Ste

-roduction

Qty

Ste 1

Variance 2

Ton

Ste $

Closing

Stoc3 Qty

Ste 4

Closing

Stoc3

Variance

Ste 5

C%60

Variance

Ste

C%6S

Qty

Ste *

C%6S

Variance

Ste '!

M9"7R59&1 1 1

"1 E 1 ?

1 C1 C1 B "1

C$#M @tA

B "1 1 1 B "1

M9"7R59&* * *

"* E * ?

* C* C* B "*

C$#M @tA

B "* * * B "*

7/18/2019 Variance


0aterial

Variance

Ste

-roduction

Qty

Ste 1

Variance 2

Ton

Ste $

Closing

Stoc3 Qty

Ste 4

Closing

Stoc3

Variance

Ste 5

C%60

Variance

Ste

C%6S

Qty

Ste *

C%6S

Variance

Ste '!

M9"7R59&/ / /

"/ E / ?

/ C/ C/ B "/

C$#M @tA

B "/ / / B "/

"able 1+.0

$e* %mportant Doc&ment ;pes "osted 'n "rod&ct'on Order ar'ance < are2

-K Aeversa+ o) "rod&ct'on Order ett+ement

-K "rod&ct'on Order ett+ement

"A -K "r'ce Change

-K Con)'rmat'on Aeversa+ @%) "r'ce Changed a)ter Con)'rmat'on=

< -K a+es Aeversa+ @%) "r'ce Changed a)ter a+es=

$'g&re 10.0

$e* %mportant ;ransact'on Codes

BBCHOAD

BO1

BOC4

$<3

CB13

CB11

CB>4

7/18/2019 Variance


(5

(51

eference+ Production Variance *nalysis in (*P Controlling y 3ohn 3ordan4 Pu5lished 5y (*P

5nput rice ariance

%np&t pr'ce var'ance occ&rs as a res&+t o) mater'a+ pr'ce change a)ter the h'gher +eve+ mater'a+cost est'mate 's re+eased.

%t occ&rs 'n an o) the ,e+o* ment'oned scenar'os2

• %) the mater'a+ va+&at'on 's ,ased on standard price contro+# a standard cost est'mate

)or the component co&+d ,e re+eased a)ter the cost est'mate )or the assem,+ 's re+eased.

• %) the mater'a+ va+&at'on 's ,ased on Moving average pr'ce contro+# a goods rece'pt o)

the component co&+d change the component pr'ce a)ter the cost est'mate )or the mater'a+ 's

re+eased.

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

<et &s tr to &nderstand o* "r'ce d'))erence var'ance occo&rs2

et "he rice difference ariance will be posted mainlA during the following process

a rocess $rder Confirmation

rice difference 'ariance occours mainlA due to the following reasons

1 %ifferent Raw Material rice in released tandard Cost 7stimate and rocess $rder Confirmation

* Change of tandard rice of Finished or emi Finished #ood.

b Cancellation of rocess $rder Confirmation

rice difference 'ariance occours mainlA due to the following reasons

1 Raw Material rice %ifference

* Finished ? emi Finished #ood rice %ifference

&et us trA to analAse the scenarios one bA one

&et us ta!e Raw Material DRM1D as an example

"he tandard Cost 7stimate released for Finished #ood DF#1D is as Follows

Raw Material Std. Rate -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on1.1.!1!

Raw Material Std. "#antit$ -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Releasedon 1.1.!1!

0aterial 2 %/er7ead Std. Rate Std. Quantity Std. Cost

Raw Material 1 )RM1 *+.00 1.00 *+.00

7/18/2019 Variance



Raw Material * )RM* 10.00 1.00 10.00

Raw Material / )RM/ >0.00 1.00 >0.00

Raw Material ; )RM; 1+.00 1.00 1+.00

9%M5: 1.+0 1.00 1.+0

%7R5: 1.=+ 1.00 1.=+

M9C$$( 1.*+ 1.00 1.*+

&9-$<R 1./0 1.00 1./0

$67R 0.;/ 1.00 0.;/

Finished #ood 1 )F#1 11>.*/ 1.00 11>.*/

"able 1.0

Scenario 1:

a rocess $rder Confirmation

a.1 %ifferent Raw Material rice in released tandard Cost 7stimate and rocess $rder Confirmation

1000 "$ of Finished #ood DF#1D confirmed )roduced.

lanned and 9ctual Material Consumption for DF#1D )1000 "$

Raw Material Std. Rate -> As per Released Standard Cost Estimate of Finished Good 1 (FG1), Released on1.1.!1!

Raw Material A%t#al Rate -> As per Mo&in' A&era'e ri%e as on 1.!.!1!

0aterial 2

%/er7ead

Std.

Rate

Std.

Quantity Std. Cost

#ctual

Rate

#ctual

Quantity

#ctual

Cost Variance

Raw Material 1

)RM1 *+.00 1000.00 *+,000.00 /+.00 1000.00 /+,000.00 )10,000.00

Raw Material *

)RM* 10.00 1000.00 10,000.00 1+.00 1000.00 1+,000.00 )+,000.00

Raw Material /

)RM/ >0.00 1000.00 >0,000.00 +=.00 1000.00 +=,000.00 /,000.00

Raw Material ;

)RM; 1+.00 1000.00 1+,000.00 1+.00 1000.00 1+,000.00 0.00

9%M5: 1.+0 1000.00 1,+00.00 1.+0 1000.00 1,+00.00 0.00

%7R5: 1.=+ 1000.00 1,=+0.00 1.=+ 1000.00 1,=+0.00 0.00

M9C$$( 1.*+ 1000.00 1,*+0.00 1.*+ 1000.00 1,*+0.00 0.00

&9-$<R 1./0 1000.00 1,/00.00 1./0 1000.00 1,/00.00 0.00

7/18/2019 Variance


0aterial 2

%/er7ead

Std.

Rate

Std.

Quantity Std. Cost

#ctual

Rate

#ctual

Quantity

#ctual

Cost Variance

$67R 0.;/ 1000.00 ;/0.00 0.;/ 1000.00 ;/0.00 0.00

Finished #ood

)F#1 11>.*/ 1000.00 11>,*/0.00 1*3.*/ 1000.00 1*3,*/0.00

)1*,000.00

"able *.0

"he 'ariance has been posted because of the change in Raw Material rice.

a.* Change of tandard rice of Finished or emi Finished #ood

&et us consider Finished #ood * for explaining the scenario.

Released tandard Cost 7stimate for Finished #ood * DF#*D is

Semi Fnished Good Std. Rate -> As per Released Standard Cost Estimate of Finished Good ! (FG!),Released on 1.1.!1!

Semi Finished Good Std. "#antit$ -> As per Released Standard Cost Estimate of Finished Good ! (FG!),Released on 1.1.!1!


Raw Material 1 )RM1 10.00 1.00 10.00

emi F5nished #ood 1 )F#1 *+.00 1.00 *+.00

emi F5nished #ood * )F#* *0.00 1.00 *0.00

9%M5: 1.+0 1.00 1.+0

%7R5: 1.=+ 1.00 1.=+

M9C$$( 1.*+ 1.00 1.*+

&9-$<R 1./0 1.00 1./0

$67R 0.;/ 1.00 0.;/

Finished #ood * )F#* >1.*/ 1.00 >1.*/

"able /.0

&et us consider that tandard Cost 7timate for emi Finished #ood 1 )DF#1D was released on 01.0*.*01*.

:ew tandard Cost of F#1 E /+.00

tandard Cost 7stimate for DF#*D was not run or released after DF#1D cost estimate release.

lanned and 9ctual Material Consumption for DF#*D )1000 "$

Semi Finished Good Std. Rate -> As per Released Standard Cost Estimate of Finished Good ! (FG!) ,Released on 1.1.!1!

7/18/2019 Variance


Semi Finished Good A%t#al Rate -> As per Released Standard Cost Estimate of Semi Finished Good (SFG) ,Released on 1.!.!1!

0aterial 2 %/er7ead

Std.

Rate

Std.

Quantity Std. Cost

#ctual

Rate

#ctual

Quantity

#ctual

Cost Variance

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

emi Finished #ood 1

)F#1 *+.00 1000.00 *+,000.00 /+.00 1000.00 /+,000.00

)10,000.00

emi Finished #ood *

)F#* *0.00 1000.00 *0,000.00 13.00 1000.00 13,000.00 *,000.00

9%M5: 1.+0 1000.00 1,+00.00 1.+0 1000.00 1,+00.00 0.00

%7R5: 1.=+ 1000.00 1,=+0.00 1.=+ 1000.00 1,=+0.00 0.00

M9C$$( 1.*+ 1000.00 1,*+0.00 1.*+ 1000.00 1,*+0.00 0.00

&9-$<R 1./0 1000.00 1,/00.00 1./0 1000.00 1,/00.00 0.00

$67R 0.;/ 1000.00 ;/0.00 0.;/ 1000.00 ;/0.00 0.00

Finished #ood * )F#* >1.*/ 1000.00

>1,*/0.0

0 >8.*/ 1000.00 >8,*/0.00 )3,000.00

"able ;.0

Scenario 2:

b Cancellation of rocess $rder Confirmation

b.1 Raw Material rice %ifference

5f the Mo'ing 9'erage rice of Raw Material during confirmation )roduction of Finished #ood /DF#/D is different from the Mo'ing 9'erage rice when the confirmation is re'ersed, price difference will beposted.

For 7xample 1000 "$ Finished #ood / F#/ Confirmed.

:ote

td. Rate 4G %uring Confimration of Finished #ood / )F#/

td. @uantitA 4G %uring Confimration of Finished #ood / )F#/

td. Cost 4G %uring Confimration of Finished #ood / )F#/

9ctual Rate 4G %uring Finished #ood / )F#/ Confimration Cancellation

9ctual @uantitA 4G %uring Finished #ood / )F#/ Confimration Cancellation

9ctual Cost 4G %uring Finished #ood / )F#/ Confimration Cancellation

7/18/2019 Variance


0aterial 2 %/er7ead Std. Rate Std. Qty. Std. Cost #ct. Rate #ct. Qty. #ct. Cost Variance

Raw Material 1 )RM1 10.00 1000.00 10,000.00 3.00 1000.00 3,000.00 *,000.00

Raw Material * )RM* *0.00 1000.00 *0,000.00 **.00 1000.00 **,000.00 )*,000.00

Raw Material / )RM/ *+.00 1000.00 *+,000.00 /0.00 1000.00 /0,000.00 )+,000.00

9%M5: 1.+0 1000.00 1,+00.00 1.+0 1000.00 1,+00.00 0.00

%7R5: 1.=+ 1000.00 1,=+0.00 1.=+ 1000.00 1,=+0.00 0.00

M9C$$( 1./0 1000.00 1,/00.00 1./0 1000.00 1,/00.00 0.00

&9-$<R 1.*+ 1000.00 1,*+0.00 1.*+ 1000.00 1,*+0.00 0.00

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