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The Sign-Off Table

Lesson 3 of 5

Variances

10 min

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When order 1001200 is finished at the end of July, its balance tells you that production cost differed from standard. Variance calculation tells you why, by splitting the difference into categories. For a controller, the categories are the valuable part: an unexplained balance is just a number; a quantity variance on rotors and a resource-usage variance on a substitute regulator are two conversations with two owners.

What July looks like

ItemAmount (USD)
Actual costs, June and July77,900
Goods receipt credits, 500 units × 150−75,000
Order balance = total variance (target cost version 0)2,900

Order 1001200 after final delivery.

Target cost versions

Variances compare a control cost with a target cost, and the pair is defined by a target cost version. SAP's learning material describes four standard versions:

VersionComparesWhat it tells you
0 Total varianceActual costs with target costs from the standard cost estimateThe variance that must be settled to FI, because stock is valued at standard
1 Production varianceActual costs with plan costs from the order's preliminary costingHow production performed against the order's own plan
2 Planning varianceOrder plan costs with the standard cost estimateWhether the order was planned differently from the standard
3 Production variance of the periodActual costs with an alternative cost estimate, such as a modified standardPerformance against a more current cost basis
Target cost versions and their meaning.
The Sign-Off Table · thesignofftable.com/academy/sap-co-301

Only version 0 is posted; the others are additional information for analysis. SAP's material also cautions that version 0 is not necessarily the sum of versions 1 and 2.

Three cost bases, three comparisons: only total variance (version 0) is settled to financial accounting.
The Sign-Off Table · thesignofftable.com/academy/sap-co-301

Variance categories

Variance calculation sorts the total into categories on the input side (what went into the order) and the output side (what came out).

CategorySideMeaningOrder 1001200 (USD)
Input price varianceInputInputs valued at a different price than in the standard, such as moving-average parts or activities revalued at actual prices0 (rotor CMC-RTR-200 has price control S, so it is issued at its USD 40 standard; Lakeside's USD 42 PO price posts as a purchase price difference at goods receipt or invoice receipt, not to the order)
Input quantity varianceInputMore or less quantity used than the target for the delivered output2,120 (15 extra rotors × USD 40 = 600; 20 extra labor hours × USD 52 = 1,040; 5 extra machine hours × USD 96 = 480)
Resource-usage varianceInputA different material or activity used than planned300 (substitute regulator used for 60 units)
Remaining input varianceInputInput differences that fit no other category, such as overhead differences480 (overhead differences)
Lot size varianceOutputLot-size-independent costs, such as setup, spread over a different quantity than planned0 (500 planned, 500 delivered)
Output price varianceOutputGoods receipt valued at a price other than the standard0
Mixed-price varianceOutputGoods receipt valued with a mixed cost estimate instead of the standard cost estimate0
Remaining varianceOutputDifferences that cannot be assigned to another category, for example when no target costs exist0
Total2,900

Variance categories with Contoso's July example (illustrative).

The USD 2,900 total variance on order 1001200 splits into categories, and each category goes to its own owner.
The Sign-Off Table · thesignofftable.com/academy/sap-co-301
  1. Did components or activities cost more per unit than in the standard?Yes → input price variance (owner: cost center, or purchasing for moving-average parts)
  2. Was more quantity used than the target for the output?Yes → input quantity variance (owner: production)
  3. Was a different material or activity used?Yes → resource-usage variance (owner: production engineering)
  4. Did the order produce a different quantity than planned, with fixed setup cost?Yes → lot size variance (owner: production planning)
Turning variance categories into owners and questions.
The Sign-Off Table · thesignofftable.com/academy/sap-co-301

Lot size and scrap

Lot size variance matters when quantities change. SAP's material gives the formula: lot-size-independent target costs × (1 − control quantity ÷ planned quantity). If Contoso had delivered only 400 of 500 planned alternators, the setup cost included in the standard for 500 would be spread over 400, and a lot size variance would appear. Scrap variance compares planned scrap with actual scrap and is valued at target cost; it appears when the BOM or routing plans scrap and the shop floor scraps more or less.

Prerequisites and tools

  • A variance key must be on the order; it comes from the costing view of the material master or a plant default. Without it, no variances are calculated.
  • A variance variant decides which categories are reported.
  • The order must be DLV or TECO for product cost by order.
  • In SAP GUI, variance calculation is commonly run per order (KKS2) or collectively (KKS1); calculation stores the result, and settlement posts it.

What would you do?

A variance report shows a large lot size variance on several Chicago orders. Planned quantity was 500, delivered 250. What is the most useful next step?

Key points
  • Total variance (version 0) = actual costs − goods receipt credits for finished orders; it is the version settled.
  • Versions 1 to 3 compare against order plan or alternative estimates for analysis only.
  • Input side: price, quantity, resource-usage, remaining input. Output side: lot size, output price, mixed price.
  • Variance key on the order and DLV or TECO status are prerequisites.

Check your understanding · not graded

Lesson check

  1. 1. Which target cost version is settled to financial accounting?

  2. 2. Fastener kits valued at moving average were issued above the estimate's price. Which category shows this?

  3. 3. What must be on an order for variances to be calculated?

  4. 4. Delivered quantity is half the planned quantity and setup cost is fixed. Which variance appears?