 Former Member

# WIP and Variance

Dear all,

What is WIP and Variance?

How do we calculate the WIP. Is it calculated for a material??

Why do we calculate the cost of materials? I am aware that we calculate the standard cost of a material?

But why do we need that when we know the price of the material that we bought.

Looking forward for your valuable replies.

Thanks

Srikanth.

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• Former Member
Posted on Sep 10, 2009 at 04:37 AM

Hi,

The system calculates work in process (WIP) to determine the costs incurred for materials that have not yet been delivered to stock. This calculates the value of the unfinished goods. the work in process is calculated for the manufacturing order. The work in process for manufacturing orders is normally calculated at actual costs. Work in process at actual costs is calculated as the difference between the debits for material withdrawals, internal activity allocations, external activities, and overhead costs (that is, the actual costs assigned to the object) and the actual credits from goods receipts for delivery to stock.

You can calculate variances either for the entire life of the object (cumulative) or for a specific posting period (periodic).

In Product Cost by Order you usually calculate the variances cumulatively.

In cumulative variance calculation, the target costs are calculated on the basis of the quantity you have transferred to stock for the order. The actual costs are for the entire life of the order. Variance calculation requires that the order have the status DLV (delivered) or TECO (technically completed).

In Product Cost by Period, you always calculate the variances periodically.

In variance calculation by period, the target costs are calculated on the basis of the quantity that you delivered to stock in the period. The actual costs are only for the period in which you calculate variances. Variance calculation requires that a goods receipt was posted for the order in the period. If that is not the case, the system only calculates remaining variances.

Apart from the above, we keep the materials in MAV for Raw Materials and Standard for SFG and FG.

The price difference is affected when there is change in the procurement price and the current price in Material Master for

RM. Accordingly the price is updated in SFG and FG during Order settlement and costing run.

Regards,