In the variance calculation process, the control costs are compared against the target costs to calculate the variances.
Calculate the work in process before you calculate the variances.
The system automatically calculates the control costs during the variance calculation process.
The control costs are calculated in different ways depending on the variances to be calculated.
Calculation of Control Costs
Variance to be calculated 
SAP target cost version

Target cost calculation 
Control costs 
Total variance* 
0 
Current standard cost estimate for material* 
Actual Costs less Work in Process ** less Scrap Variance *** 
Production variances 
1 
Preliminary cost estimate for product cost collector or manufacturing order 
Actual Costs less Work in Process less Scrap Variance 
Production variance of the period 
3 
An alternative material cost estimate 
Actual Costs less Work in Process less Scrap Variance 
Planning variances 
2 
Current standard cost estimate for material 
Preliminary cost estimate for order**** 
* In salesorderrelated production with a valuated sales order stock, the total variance is always calculated on the basis of the cost estimate used to calculate the standard price.
** The work in process is deducted from the actual costs only in the Product Cost by Period component. The amount deducted is always the value of the work in process updated in results analysis version 0.
*** The amount deducted is always the value of the scrap variance updated in target cost version 0.
**** Not possible for product cost collectors
With target cost versions 0, 1, and 3, the base quantity is the actual quantities delivered to inventory (the yield quantity). With target cost version 2 the base quantity is the planned order quantity.
Subtracting the work in process and scrap variance from the actual costs ensures that:
Only true variances are calculated
The amount of the variances is not distorted by the value of the unplanned scrap and work in process distributed to the delivered materials
See also:
For detailed information on calculating variances and scrap variances with a valuated sales order stock, refer to the following section: