In Production Accounting by Order, WIP is calculated based on the current order status. As outlined in the figure below, the order's actual balance is considered WIP as long as goods are still under production (the order is not yet finally delivered). Once production is finished and all goods have been delivered to stock, the order status changes to Delivered (DLV) and production variances are posted.
With the production order being finally delivered, an event-based settlement is triggered, which clears the order balance and WIP, and results in the posting of production variances. This variance posting fully credits the production order.
The variance posted is not limited to a single total value on the report; It can be analyzed in more detail using different variance categories, which break down the variance into different values based on distinct sources of production variance, such as input price variance or input quantity variance. This breakdown is enabled by an activated variance split in customizing.
The next figure explains the variance categories in more detail.
Variance Categories
When analyzing production variances after the event-based settlement of a production order, the following variance categories may occur:
Input price variances are caused by differences between the planned and actual prices of the materials and activities used. For instance, a material is entered at EUR 10 in the standard cost estimate and later valuated at EUR 11 when issuing it from stock. This results in a price variance of EUR 1.
Output price variances occur when a delivery is made to stock at a price that differs from the standard price. For instance, when the material's price is set to average moving price (MAP) with control indicator "V", which differs from the standard price.
Input quantity variances are caused by differences between the planned and actual consumption quantities of materials and activities.
Example: The activity price for machine time is EUR 5/min. You plan a machine time of 15 min but 17 min are confirmed. This results in a quantity variance of EUR 10.
Resource usage variances occur when different materials and activities are used than were planned. If you use raw material B instead of raw material A, the system reports the costs for both raw material A and raw material B as resource usage variances
Remaining variances occur when variances can't be categorized. On the input side, for example, they are represented by differences caused by a changing cost rate for overhead costs. On the output side, rounding differences may occur.
Cost Analysis
Let's revisit the bike example. As seen in the previous lesson, after the final goods receipt was performed, the order status changed to DLV. As a result, the target costs increased, while the Actual and WIP costs decreased.
Following directly, the system automatically performs an event-based settlement, which involves the following steps:
- The remaining WIP is cleared from the WIP inventory account.
- An event-based variance posting is performed which fully credits the production order and clears its actual balance.
- At the same time, the production variances are posted in more detail, broken down according to the different variance categories ("variance split").
In SAP S/4HANA Cloud Public Edition, the journal entries for the production variances are posted to a single G/L account. The variance categories are distinguished by different SLA (sub-ledger) Line Item Types, which allows for analyzing each variance category separately in reporting. The variance split is achieved through split settings on event-based processing-key in customizing.
The event-based settlement marks the completion of the typical process steps in Production Accounting. If any errors occur, an error handling process is available as a troubleshooting measure, which will be explained in more detail in the next lesson.
Note
The settlement based on business events is the main approach. However, there’s also alternative which allows for manual settlement. You can find more information on here: