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Input Price Variance, Quantity Variance, Scrap Variance and Resource Usage Variance.

Hi Experts,

Please explain me how system is calculating Input Price Variance, Quantity Variance, Scrap Variance and Resource Usage Variance.

User asking formula for these 4 variance. Please explain me how the system is calculating for Raw material R0818260W.

Production order (Raw material R0818260W) overview,

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4 Answers

  • Posted on Aug 04, 2016 at 11:56 AM

    Hello

    Have a look on the document on variance calculation, might be helpful for you

    Understanding Production Order Variance - Part 2 The SAP Perspective

    Regards

    SS

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  • Posted on Aug 05, 2016 at 09:29 AM

    Hi Shekhar,

    1.Input Price Variance:


    If you calculate variances at the end of the period, the system recalculates input price variances, providing you specified quantities in addition to the costs for the postings.


    With target/actual comparisons, the price variances are defined by the following formulas:

    Input price variance = (Actual price - Plan price) x Actual input quantity
    Fixed input price variance = (Fixed actual price - Fixed plan price) x Actual input quantity.

    Variances caused by both price differences and quantity differences are assigned to the category of input price variances.

    If the quantities are incomplete or nonexistent, the input price variances are taken from the posting records as they have been calculated from the actual costs for the postings as a percentage and activity-based. It is not possible to calculate input price variances if no percentage rates have been defined. The input price variances are actually calculated with the following formulas, which give the same results as the above formulas:

    Input price variance = Actual costs - (Actual input qty/Target input qty) x Target costs
    Fixed input price var. = Fixed actual costs - (Actual input qty ÷ Target input qty) x Fixed target costs

    2.Input Quantity Variance :

    Difference between the target cost and the control costs caused by differences between the planned consumption quantities of the goods and activities. The variance calculation process calculates the input quantity variances by period and cost element.

    In a target/actual comparison, the quantity variances are defined by the following formulas:

    Input quantity variance = (Actual input qty - Target input quantity) x Planned price Input qty variance fixed = (Actual input qty - target input qty) x Planned fixed price.

    Variances caused by both price differences and quantity differences are not assigned to the input quantity variances but shown as input price variances.

    Input quantity variances can only be calculated if the target and actual consumption quantities are available.

    Input quantity variances are actually calculated by the following formulas, which give the same results as the formulas above:

    Input quantity variance = (Actual input qty/Target input qty - 1 ) x Target costs

    Input qty variance (fixed) = (Actual input qty/Target input qty - 1) x Target costs (fixed).

    Examples

    11 pieces are withdrawn from stock for a production order, but only 10 pieces were planned. The material costs USD 10 each.

    Input quantity variances = (11 pc. - 10 pc.) x (USD 100 / 10 pc.) = USD 10.

    3. Resource-usage variances :

    Resource-usage variances are calculated if either no control costs or no target costs exist for a cost element, a cost center (activity or distribution), an origin group, a material, and the plant for the material.

    Resource-usage variance = Actual costs - Target costs - Input price variance
    Fixed resource-usage variance = Fixed actual costs - Fixed target costs - Fixed input price variance

    With plan/plan comparisons of cost objects to calculate planning variances, the actual costs in the formulas are replaced with the plan control costs.

    Examples.

    Suppose your finished product FIN X uses raw material RAW A. The standard cost estimate for FIN X includes the cost of RAW A.

    When you produce the material, RAW A turns out to be faulty. You decide to use RAW B instead.

    The use of RAW B, however, results in higher costs than would have been the case with RAW A. The difference between the costs planned for RAW A and the costs incurred by RAW B are reported by the system as a resource-usage variance.

    4. Scrap variance:

    To determine the scrap variance, the system must first determine the scrap variance quantity (the quantity of unplanned scrap). The scrap variance quantity is determined by subtracting the actual scrap quantity from the target scrap quantity. The actual scrap quantity is the scrap quantity actually confirmed at an operation. The target scrap quantity is the planned scrap quantity that has been converted to the confirmed yield.

    This example will examine operation 20 more closely.

    The target scrap quantity is 212.5 kilograms. This amount is calculated as follows:

    850 (confirmed yield) x 0.2 / (1 - 0.2) = 212.5 kilograms.

    Actual scrap quantity 300 kilograms- Target scrap quantity 212.50 kilograms= Scrap variance quantity 87.50 kilograms (= quantity of unplanned scrap)

    The system determines the scrap variance by valuating the scrap variance quantity with the target cost less the planned operation scrap.

    The cost of the planned scrap is deducted from the target cost with the following formula:

    Net target cost =Total cost - Cost of planned scrap.

    Regards,

    @KRK@

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  • Posted on Aug 22, 2016 at 09:37 AM

    Hi,

    Check below link

    Variance Analysis in Manufacturing Process and Product Costing

    Regards

    Prasad Patil

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  • Posted on Aug 22, 2016 at 10:02 AM

    Hi All,

    Please find analysis on this issue.

    In the variance calculation the scrap variance is calculated first and then the other variances are calculated based on the remaining actual costs. For order 101088847 operation scrap has been planned for each operation and confirmed at each operation. The difference between the planned operation scrap and actual confirmed scrap is the unplanned scrap which is valuated with a cost estimate, here the standard cost estimate (planned costs net of planned scrap value). The scrap quantities and the unplanned scrap are as following: Operation Confirmed Target (planned) Unplanned UoM Scrap Variance in AUD 0020 25.581,464 125.799,891 100.218,427- EA 4.796,00- 0030 27.800,556 21.825,581 5.974,975 EA 285,94 0040 48.000 43.954,625 4.045,375 EA 193,59 0050 6.725 6.001,690 723,310 EA 34,61 Sum 89.474,767 EA 4.281,86- The material R0818260W is assigned to the operation 0020 and has planned costs of 56,71 AUD of which (56,71 / 124,425 * 19,425) is the planned scrap portion of it . This leads to the scrap variance value of Unplanned scrap / lot size (1.000,023) * (56,71- (56,71 / 124,425 * 19,425)) = 4.281,86-. See above. After that the other variances are calculated. Control costs are actual costs - scrap variance and control qty. = actual qty. - scrap variance qty. (per item). This leads to the following variances: Price variance = Control Costs - ( Control quantity / Target input qty ) * Target Costs = (50.602,25 - 4.281,86-) - ((121.721 - 9.394,634- ) / 123.710,444) * 56.384,32 = 4.875,32- AUD Qty. variance = ( Control quantity / Target input qty - 1 ) * Target Costs = ((121.721 - 9.394,634- ) / 123.710,444 - 1 ) * 56.384,32 = 3.375,11 AUD

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