The variance is the difference between the expected standard cost and the actual cost incurred. Variance analysis involves breaking down the total variance to explain how much of it is caused by usage of resources being different from the standard and how much of it is caused by the price of resources being different from the standard. 

Each site controller has the responsibility to analyze each month the variance and to explain this variance in order to :

  • Understand the reasons
  • Initiate corrective actions
  • If needed adjust the inventory value and change the semi-standard way of calculation, depending on the origin of the variance.

This process of analysis, whatever the result be a change of costing or not, must be formalized, and archived as a justification of records based on following sheets :



Open the sheet "Variance Template"


STEP 1

Step 1:  Open the file.


Choose the authorization scope and the period / fiscal year

SCOPE : SCO



BW File on

BW - IMEP - WP2 Variance Analysis


STEP 2

Control that the report BW = KE30:
Total column P = D05
Total column Q = E05
Total column R = F05





STEP 3

List the products that generate the main variances




STEP 4

Explain the main variances


a. structure: Production version change / Raw material / Recycling / Others

How to read this variance ? 

  • Material 53789 TY A 218 V30 BLACK 34NG XXXX was produced with a different production version than the one used for the costing
  • In the production version (B332) used for the costing, it is forecasted to produce one batch in 18,239 hours. But this material was produced in 17,90 h on an other production line.

It creates the following variance on process order : 

b. yield: RM consumption is higher or lower than std quantity 

How to read this variance ?

  • The actual time (96 h) to produce material 64712 PA 66 MOLTEN POLYMER is higher than the standard time (84,261h)
  • It creates the following variance on process order : 

c. purchased vs produced: material is purchased instead of produced or vice & versa 

How to read this variance ?  

  • Material 63324 is supposed to be produced but it was purchased 
  • As it is purchased, the production cost = 100 % CP while in the costing the production cost is splited into CP / CNP / AMO

d. subcontractor: Material is produced by a subcontractor instead of an internal production 

How to read this variance ?

  • Same principle as the previous variance
  • When a material is produced by a subcontractor instead of an internal production

e. others: to be commented


STEP 5

Fill in those information in « variance template » tab




STEP 6

When there are recurring performance variances, they can be listed in the sheet "Perf. analysis"

 

STEP 1

Use the transaction KE30 and choose the report ZZZ-SOLV01

 

 

Enter 

  1. the reporting currency = 10
  2. the period
  3. the company code
  4. the plant code
  5. the IECRA (when applicable)
  6. select : "Classic drilldown report"

 

 

 

STEP 2

To have the detail of the value field D45 VC CC Variance => click on the amount, right click and select "Line items" or click F9

 

 

 

STEP 3

Use the lay out /D45 CC VAR to have the variance by cost center 

 

 

 

 

STEP 4

To have the detail of the cost centers, you can use the transaction S_ALR_87013611 

Enter :

  1. the controlling area
  2. the period
  3. the list of cost centers you want to analyse

 

 

 

 

STEP 5

Double click on the amount you want to analyse

 

 

 

STEP 6

Fill you the variance template with your analysis

 

STEP 1

Use the transaction KE30 and choose the report ZZZ-SOLV01

 

 

Enter 

  1. the reporting currency = 10
  2. the period
  3. the company code
  4. the plant code
  5. the IECRA (when applicable)
  6. select : "Classic drilldown report"

 

 

 

STEP 2

To have the detail of the value field D47 Ec/T030 => click on the amount, right click and select "Line items" or click F9

 

 

 

STEP 3

Use the lay out /D47 PPV to have the variance by material code

 

 

 

 

STEP 4

Explain the main variances

Display the standard costing of the material with CK13N. 

Enter :

  1. The material & plant code
  2. The costing variant
  3. The validity date

and   

The standard cost of the material code 128715 is

18 099,12 CNY / 1 000 kg

 

 

STEP 5

Display the actual purchase price of the same material with the transaction MB51. 

Enter:

  1. the material code 
  2. the plant code
  3. the movement type = 101 to 102
  4. posting date = 1 month

 

 

The list of purchase orders to be analysed is displayed

 

 

STEP 6

Display a purchase order to calculate the purchase price variance 

 

 


a - Quantity purchased

b - Purchase price

c - Delivery costs

d - TOTAL costs = b + c

e - Actual unit price = d / a

f - Standard cost (from CK13N)

h - Purchase price var = (f - e) / a

Each month, the inventory is revaluated with the new standard cost.

Revaluation = [Standard cost (M) – Standard cost (M-1) x Quantity 01/01/M (00h00)

The variance is due to a more or less efficient use of the time available to carry out the actual production. It compares the actual time taken to carry out an activity with the standard time allowed and values the difference at the standard.

The analysis is performed with the report ZWPP40A

Each month, the inventory is revaluated with the new standard cost. Revaluation = [Standard cost (M) – Standard cost (M-1) x Quantity 01/01/M (00h00)

There is a revaluation of fixed costs when:

  • there is a modification of the production process
  • in January with the new standard hourly rate


STEP 1

Once a year, when the control IAC 01.09 is completed and uploaded in WP2. 

  • Copy the result of the sheet "2d-Activity TOTAL" and paste the result in the tab "IAC 01.09"





STEP 2

Update the sheet "CC variance" and enter:

  • the list of production cost centers 
  • the column "normal capacity (year)"
  • the column "Budget (month)" - usually it is equal to the column "Normal capacity (month)"
  • the column "standard capacity (h) (year)"




STEP 3

Each month, you have to update the actual costs & hours. 

The price variance & the absorption variance will be automatically calculated 




STEP 4

For the monthly update use the transaction S_ALR_87013611 

Enter 

  1. the controlling area
  2. the period
  3. the group of production cost centers




STEP 5

  1. Production cost centers
  2. Actual fixed costs
  3. Plan costs from IAC 01.09 (local currency)
  4. Actual hour
  5.  Normal capacity from IAC 01.09 (h)




STEP 6

Report the actual costs of each cost center per activity 

Report the actual hours of each cost center per activity 



STEP 7

Once the file is completed, the price & absorption variance can be reported in the variance analysis template


3 Comments

  1. Jean-Pierre Godbillon

    We miss in that page the link to the xls template that we can only access through OP.106

  2. Jean-Pierre Godbillon

    Screen shot aren't available anymore 

    1. ROLLIER, Charlotte

      I think it is solved now