IAC 01.02. Variance analysis 

Process: Product Costing

Responsibility area: Internal Control Monitor  

Risk

FRA justifies the usage of manual costing vs a reference list validated by plant manager and GCCO, controls inventory revaluation and analyzes variances   

Process description

Variances of production costs are analyzed monthly to ensure inventory valuation and cost of sales accuracy

Control description

FRA:

  1.  WP2 description:

     1. compares list of manual costing vs result of ZWOCO50 transaction

     2. analyzes product costing variances month over month and checks that there were no blocking errors (CK40N reports)

     3. analyses variances (actual vs target) with the variable & fixed cost split (ZWPP_MCKOST or IMEP BW reports)

     - ZWOCO050 file with comments

     - CK40N checklist + CK40N analysis template


  2. PF2 description:

     1 . Analysis of material cost variances Month N vs Month N-1 above 10K Materiality (ZZM_MAT_VAL_COMP report) r ZWPP_MCKOST or IMEP BW reports) with comments

Scope
WP2 & PF2
Frequency

D10


Control owner

Finance Responsible Assigned (FRA)

References


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Control evidences

IAC 01.02 Monthly variance analysis, CCR, manual costing.xls  

IAC 01.02 template PF2.xlsx





  Guideline  

Download the file IAC 01.02 Monthly variance analysis, CCR, manual costing.xls

There are 9 sheets in the file  :


STEP 1

Start the transaction ZWOCO050

Select the Layout 

  1. Select Layout by clicking on 

  2. Click on IAC 01.02



STEP 2

  1. enter the period
  2. enter a plant or a list of plants
  3. click on  to enter the path & the file name



Confirm 4 tables codes in "Field Name"
VERPRBEPH1
BWPRHVJBWH






STEP 3

Upload the file in excel

  1. choose the folder where you want to save the file

  2. enter the file name

  3. Select “Excel files” in files of type 



STEP 4

Execute 

It may result in a long runtime



STEP 5

There is an information message that informs that inputs were written in the file



STEP 7

The report was saved in excel


Each line of the file has to be justified with the following reason code :
  1. Co-product /Sold waste/Recycled material
  2. Integrated FIFO
  3. Wrong Material file purchase info
  4. Erroneous reception
  5. Other (detailed explanation to be provided)

Save the file

Example

Material 64569 Blocs exutoire vrac was modified on July, 2nd

The old value was 550 € / T, the new value is 650 € / T

This material is a waste, that's the reason why it has a commercial price. The reason code that corresponds to this modification is the first one : 1-Co-product /Sold waste/Recycled material.





STEP 8

Insert the file ZWOCO050 in the file IAC 01.02 of the month

  1. Select "insert"

  2. Click on “Object”

  3. Select “Create from File”

  4. Click on “Browse” and select the file

  5. Check “Display as icon”

  6. Click on OK



 

STEP 1

Start the transaction using the menu path or transaction code CK40N

Double-click 

 

 

STEP 2

  1. enter the costing run of the month and 

 

 

 

STEP 3

  1. Expand 

 

 

STEP 4

All error messages must be cleared

When there is a warning message, it often happens that there is a mistake in the costing. So even if it is not compulsory, it is recommended to check the warning messages and try to correct it. 

Note: Sometimes, despite not having any error, some materials remain in column "Still Open". This is related with a technical issue linked to the mixed-costing materials. In order to correct the display table it's necessary to execute transaction CKSU.


STEP 1

WP2 + PF2

When there are error or warning messages, you must click on  to analyse and clear them 



STEP 2

WP2 + PF2

Click on  to have the list of messages


Costing run- errors log



STEP 3

WP2 + PF2

1 - Type of message 

 Error messages, must be cleared

 Warning messages, must be analysed and cleared as much as possible

 Information messages

2 - Message code

3 - Plant code

4 - Material code

5 - Message description



STEP 4

WP2 + PF2

You can double-click on a message to have a more detailed description of the issue









 


STEP 5

When   errors are corrected and warning messages checked , costing   analysis   can   begin. Click on 

 

 

STEP 6

Select the variant. In this example, we are using the variant /IAC0102


 

 

STEP 7

Filter the plant you are responsible for

 

 

STEP 8

Save in excel : local file => spreadsheet

 

 

STEP 9

Enter the directory & the file name and generate the file

STEP 10

All variances above a defined threshold must be commented. The threshold is defined by the FRA : 

  • Unit cost variance %
  • Inventory revaluation value. 

If the threshold is above +/- 10% at unit cost level or +/- 50 k€ at item inventory revaluation level should be authorized by RCOM.

Open the file

If:

  • the unit variation is > 10% (or local threshold)
  • or Anticipated reval is > 50 kEUR (or local threshold), 

a deeper analysis is requested

 

 

In this example, the costing of the following materials 60444, 64151, 64158, 64235, 64248 have to be checked and validated

as the variance is above 10% or/and the revaluation above 50 k€

 

STEP 1

Ex : 64235 BASE DE NIGROSINE/SOLVANT NOIR 7 FUT

The MAP increased from 6 643 € to 8 083 €
  • We have to validate the MAP (Moving Average Price) by checking purchase orders of the month.
  • It can also help to check the purchase variance of this material (KE30) to define where does the increase come from.

 

 

STEP 2

Display purchase orders with the transaction ME2M

Enter

  1. the material code & the plant
  2. the period

 

 

 

STEP 3

There is one purchase order to check.

=> Double-click on it

In march, the purchase price is 16,55 € / KG 

 

It corresponds to the price invoiced

 = 1 324 € / 80 kg

 = 16,55 € / kg

At the end of M-1, the MAP was 6,64 € / kg. As the purchase price of M is 16,55 € / kg, it is normal that the MAP increases in M. 

 

 

If there is a mistake in the calculation of the new MAP due to an error in the purchase order, invoice price etc:

  • Ask to correct the purchase order,
  • If the MAP is still not correct => use the field Commercial 1 in view accounting 2 to correct it manually,
  • Prepare a documentation for control IAC 01.02

STEP 11

When the analysis is completed, insert the file with your comments in the file IAC 01.02 of the month (sheet "CK40N"). 

  1. Select "insert"

  2. Click on “Object”

  3. Select “Create from File”

  4. Click on “Browse” and select the file

  5. Check “Display as icon”

  6. Click on OK


 

Once the CK40N analysis was completed, fill the checklist to confirm that all tasks have been properly performed

  1. enter your site, name, date & period
  2. enter the status of the task
  3. when a task has not been performed, it is compulsory to comment
  4. integrated FIFO is only applicable in limited cases

 

 

 

 

 

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


 


Download the file IAC 01.02 template PF2.xlsx

There are 4 sheets in the file  :

Overview of the 1st sheet: Read me first

Overview of the 2nd sheet: Base

Overview of the 3rd sheet: Pivot



STEP 1

Start the transaction ZZM_MAT_VAL_COMP and select the layout 

  1. Select layout by clicking on 

  2. Click on IAC 01.02



STEP 2

  1. Enter a plant or a list of plants
  2. Enter the periods (N-1 and N)








STEP 3

Execute 


 

It may result in a long run time.

 





STEP 4

Download the file to excel

  1. Extract the file through "export -> Spreadsheet"

  2. Choose Excel (in office 2007...)

  3. Execute 



STEP 5

Update the template with the data retrieved in STEP 4

  1. Open excel file created in STEP 4 and copy all data starting "line 2"
  2. Past the data in the template of IAC 01.02 PF2



STEP 6

The Pivot table in the template is refreshed 

 



STEP 7

Comment all the materials lines marked as "To be validated"




4 Comments

  1. Filipe Ramos dos Santos

    Variant IAC 01.02 is leading to an incomplete extraction in WP1, as it just has ZMAT material type.

    To be corrected.

  2. Jean-Pierre Godbillon

    Link to PF1 template in control evidence block is out of order

  3. ROLLIER, Charlotte

    Hello Jean-Pierre Godbillon, I updated the link. Can you check it works now: IAC 01.02. Variance analysis 

    Check the version "For review" 

    If it is ok, you must review and publish it

  4. Filipe Ramos dos Santos

    In WP1 Process > I fill the template > 4. Sheets "Variance analysis" > Variable costs variances > 1. Performance D05 > Step 6 > a. structure, difference in hours to produce one material cannot be an explanation for variances in D05. MACHI hours are part of fixed cost, which means it reflects in E05.

    I understand both D05 and E05 need to breakdown variances into the same different "reasons", but this explanation could be misleading due to the fact that it is inserted in the variable costs section.