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### Periodic Variance Calculation: Value Flow

1. In make-to-stock production and in sales-order-related production with a valuated sales order stock, goods receipts during the period result in corresponding postings in Financial Accounting (FI). A goods receipt results in the following:

• The order is credited.

• A posting is made in financial accounting:

The inventory account is debited and the inventory change account is credited.

For materials whose price control indicator is set to S , a goods receipt credits the order and a posting is made in FI at the standard price shown in the material master.

In make-to-stock production, the standard price is normally calculated in a standard cost estimate for the material.

In sales-order-related production with a valuated sales order stock, the standard price is written to the material master at the time of the first goods receipt. The inventory can be valuated according to the entries in Customizing for the Product Cost by Sales Order component in the requirements class :

• According to the standard cost estimate for material

• According to a predefined strategy sequence

For materials whose price control indicator is set to V , the goods receipt results in the order being credited and a posting made to Financial Accounting at the price selected by the valuation variant defined in Customizing for Product Cost Controlling under Define Valuation of Goods Received for Order Delivery .

If this price is different than the standard price, the system will report an output price variance when the variances are calculated.

1. If the completed material is transferred into inventory at the standard price, the difference between the actual cost of the order or product cost collector and the target cost according to the standard cost estimate in each period will equal the order balance if the materials produced have been transferred into inventory but the orders have not yet been settled.

The actual costs consist of the costs assigned directly to the order or product cost collector (such as the costs for material usage) and the costs that were assigned to the product cost collector by distributing the costs entered at the level of the hierarchy.

The order balance for the period can contain the following costs:

• Work in process

• Scrap

• Variances

1. For this reason you calculate the WIP before you calculate the variances. In the Product Cost by Period component, work in process is valuated at target cost.

2. You calculate the variances.

For orders for which a goods receipt was entered in the period, the system determines the variances between the standard price and the actual cost in the period for the product cost collector or manufacturing order. If the costing lot size is not the same as quantity produced in the period, the values in the standard cost estimate are converted to the quantity produced in the period.

The system performs the following steps when it calculates the variances:

• It valuates the unplanned scrap with the target costs for the operations carried out.

• To calculate the total variance (target cost version 0), the system subtracts the value of the work in process and the value of the scrap for the period from the actual cost for the period. The result is called the control cost .

• The system compares the target costs with the net actual costs.

In Product Cost by Order , the scrap is deducted from the actual costs. In Product Cost by Period , the work in process and scrap are deducted from the actual costs.

1. The explanation facility of variance calculation enables you to:

• See the amount of this variance

• Determine the cause of the variance (variance category)

1. The explanation facility for scrap shows you which operations incurred scrap and the value of the scrap.

2. Finally, you settle:

• You settle the work in process to Financial Accounting and Profit Center Accounting .

• You settle the following amount (variances + scrap) to Financial Accounting , Profit Center Accounting , and Actual Costing / Material Ledger (if applicable):

Actual costs – Work in process – Credit postings for goods receipts

• You settle the variances (including the scrap) to Profitability Analysis broken down into variance categories.