Use

The scrap variance is the value of the scrap variance quantity. The scrap variance quantity is the difference between the target scrap quantity (planned scrap quantity converted to yield) and actual scrap quantity (confirmed scrap quantity). The scrap variance quantity is valuated with the target cost from which the planned scrap costs have been deducted.

Integration

You can transfer the scrap variances to a value field in Profitability Analysis (CO-PA).

The scrap variances are part of the order balance that you can transfer to Financial Accounting (FI), Profit Center Accounting (EC-PCA), and Actual Costing/Material Ledger (CO-PC-ACT).

Note also the capabilities of user-defined error management .

Prerequisites

You must specify that the scrap variance is calculated by the variance calculation function. You do this by going into Customizing for Product Cost by Order or Product Cost by Period under  Period-End Closing Variances Define Variance Keys and selecting the Scrap indicator.

You must specify that scrap variances are shown in variance calculation and that the control costs are calculated by deducting the scrap variances from the actual costs. You do this by going into Customizing for Product Cost by Order or Product Cost by Period under  Period-End Closing V ariances Check Variance Variants and selecting the Scrap indicator.

You can specify a valuation variant that controls the valuation of scrap in Customizing for Product Cost By Order or Product Cost By Period under  Period-End Closing Variances Define Valuation Variant for Work in Process and Scrap (Target Costs) . You specify the valuation variant for scrap in target cost version 0. If you don’t define a valuation variant for scrap, the scrap variance is valuated at standard cost. The valuation variant for work in process and scrap is also used to valuate the work in process at target cost in Product Cost by Period .

In the Product Cost by Period component, SAP recommends valuating the scrap on the basis of the preliminary cost estimate for the product cost collector , particularly in repetitive manufacturing.

In repetitive manufacturing environments, make sure that the reporting point structure that you are using in production matches the reporting point structure you are using to calculate the target costs. If you change the reporting point structure, refer to the sections Flexible Reporting Points and Updating the Preliminary Cost Estimate .

Make sure that the cost estimate used to valuate the scrap is based on the same task list type and task list group as:

Every cost estimate that is relevant to the valuation of scrap variances must be a product cost estimate and have an itemization .

Features

Scrap variances are always calculated in accordance with the valuation variant for work in process and scrap specified in target cost version 0. Scrap variances can be used to calculate the net actual costs with all target cost versions that have the reference base "actual." Check the settings in Customizing in the variance key and in the variance variant for this purpose.

The scrap variance are calculated by valuating the difference between the target scrap quantities and the scrap quantities confirmed at the operations with the target costs from which the costs for planned scrap have been deducted. The target scrap quantities are determined on the basis of the cost estimate used to calculate target costs, such as the standard cost estimate for the material or the preliminary cost estimate for a production order. If you have not planned any operation scrap in the routing, the value of the confirmed scrap quantity is reported as a scrap variance.

The valuation variant for work in process and scrap enables you to control which cost estimate is used to valuate the scrap variance:

If you haven’t defined a valuation variant for the valuation of scrap variances, the system valuates the scrap variances automatically using the cost estimate that was used to calculate the standard price. In make-to-stock production, this is the standard cost estimate for the material. If you are using a valuated sales order stock, the standard price is determined using a predefined strategy (see also: Standard Price with Valuated Sales Order Stock ). The system valuates the scrap variance with the target cost calculated on the basis of the standard cost of the operation and from which the cost of planned scrap was deducted.

The cost estimate used as a basis for the valuation of the scrap variance may contain costs such as sales and administration costs that are not relevant for inventory valuation. In cost estimates with quantity structure, these costs are shown in a separate cost component view . Costs that are not relevant for inventory valuation are not included in the valuation of the scrap variance.

If you are using production orders, you can:

When scrap is confirmed for the production order, the scrap quantity for each order is valuated with the net target cost per unit of measure.

In repetitive manufacturing environments, you can confirm scrap quantities with reporting point backflushes.

When you confirm scrap for operations, the scrap variance quantity for each operation is valuated with the target cost of the operation from which the planned scrap was deducted.

When you confirm scrap for reporting points, the scrap variance quantity for each reporting point is valuated with the target cost of the operation from which the planned scrap was deducted.

Calculation of Target Costs on Basis of Standard Cost Estimate for Material

If you confirm on the basis of a standard cost estimate for the material and valuate work in process and scrap correspondingly, there are a number of different cases:

Case 1:

The current routing for the production version and the standard cost estimate for the material:

The work in process and scrap can be correctly valuated.

Case 2:

The current routing for the production version and the standard cost estimate for the material:

You can use user-defined error management to ensure that work in process and scrap variances are calculated. The valuation of work in process and scrap is basically correct.

Case 3:

The current routing for the production version and the standard cost estimate for the material:

You can use user-defined error management to ensure that work in process and scrap variances are calculated. You can valuate the work in process and scrap, but the result will not be correct.

Case 4:

The current routing for the production version and the standard cost estimate for the material:

In this case it is not possible to calculate work in process or scrap at all.

Constraints

If a cost estimate is created on the basis of the routing, the quantities are increased in the cost estimate in accordance with this "simulated" operation scrap. The quantities of the planned (simulated) operation scrap are updated in the itemization.

These quantities also are included when the scrap variance is calculated. This means that the unplanned scrap quantity in such a case is the difference between the actual scrap quantity and the simulated planned operation scrap. The scrap variance quantity is valuated with the target costs less the simulated planned scrap quantities.

Example 1

Example for Scrap Variance When No Operation Scrap Was Planned

The following example valuates the scrap variance using the standard cost estimate for the material.

The standard cost estimate calculates the standard cost of the material being manufactured for each operation. The routing determines which operation the material components in the BOM are staged at (that is, which operation the goods issues and therefore the costs for the material components are assigned to).

Operations 0010 and 0030 of a production order are defined as milestones. No operation scrap was planned.

*Milestones

In operation 0010, 2 liters of raw materials and 15 minutes of internal activities are used for each finished ton according to the preliminary cost estimate for the product cost collector. The cost of goods manufactured per ton for this operation is EUR 150.

In operation 0020, 5 liters of raw materials and 10 minutes of internal activities are used for each finished ton according to the preliminary cost estimate for the product cost collector. The cost of goods manufactured per ton for this operation is EUR 100.

In operation 0030, 15 minutes of internal activities are used for each finished ton according to the preliminary cost estimate for the product cost collector. The cost of goods manufactured per ton for this operation is EUR 50.

At the first milestone (operation 0010), 9 tons yield and 1 ton scrap are confirmed. At the second milestone (after operation 0030), 3 tons yield and 0.25 ton scrap are confirmed.

When the system calculates the variances, it valuates the unplanned scrap quantity with the target cost calculated on the basis of the standard cost in the standard cost estimate. The target costs are calculated for all executed operations and reduced by the value of the planned scrap (in our example, this value is zero). When it calculates the variances, the system updates this information to the production order for each cost element or for each cost element and origin group. Because no operation scrap was planned, the confirmed scrap quantity is the same as the unplanned scrap quantity.

The target cost for the unplanned scrap in operation 0010 is EUR 150 (1 ton x EUR 150). The target cost for the unplanned scrap in operation 0030 is EUR 37.50 (0.25 ton x EUR 150) + EUR 25 (0.25 ton x EUR 100) + EUR 12.5 (0.25 ton x EUR 50).

The value of the scrap variance is EUR 225 (150 + 75).

Example 2

Example for Scrap Variance When Operation Scrap Was Planned

Planned Scrap

( )

As in example 1, this example valuates the scrap variance using the standard cost estimate for the material.

In the routing, 20% operation scrap was planned for each of the two operations 10 and 20. This means that:

The planned operation scrap is reported in the itemization of the product cost estimate. This scrap is included in the determination of scrap variances.

Assembly scrap determined on the basis of the operation scrap increases the lot size of the material being produced. In this example, the assembly scrap is 56.25%.

Suppose that 100 kilograms of finished product are to be produced. To ensure that the final output is 100 kilograms, the system increases the lot size to 156.25 to account for the assembly scrap.

Assuming that the ratio of raw material used at operation 10 to finished product is 1:1, 156.25 kilograms of raw material enter the production process at operation 10. The output of operation 10 is 156.25 less 20% for the operation scrap or 31.25 kilograms, leaving 125 kilograms. Operation 20 incurs 20% scrap, or 25 kilograms. 100 kilograms enter the final operation (operation 30). Because no scrap was planned at operation 30, the output quantity also is 100 kilograms.

For detailed information on operation scrap in the routing, assembly scrap, component scrap, the net indicator, and on operation scrap in the BOM, as well as on the interactions between these factors, refer to the following section: Addendum: Scrap in Product Cost Controlling

Actual

During production, 312 kilograms of scrap are confirmed at operation 10 (as planned) and 300 kilograms of scrap are confirmed at operation 20.

Calculation of the Scrap Variance Quantity

( )

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.

Result:

Actual scrap quantity 300 kilograms

- Target scrap quantity 212.50 kilograms

= Scrap variance quantity 87.50 kilograms (= quantity of unplanned scrap)

Calculation of the Scrap Variance (Costs)

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

Lot size

The net target costs are calculated for each costing item.

Explanation Facility for Scrap Variance

The explanation facility shows the reference quantity used to calculate the work in process (only with the calculation of work in process at target costs in the Product Cost by Period component) (see also the figure Calculation of Scrap Variance Quantity ). In the explanation facility, you can use the F1 help to assist you in interpreting the key figures.

For information on the WIP quantity and the reference quantity, refer to following section: Work in Process in Product Cost by Period

For information on how to access the explanation facility for scrap variances, refer to the following section: Calculating Variances

See also:

For detailed information on variance calculation, refer to the following sections:

Variance Calculation

Target Cost Versions in Variance Calculation

For information on including planned scrap in cost estimates, refer to the following section:

Costing Scrap