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New Book SAP Press: Production Variance Analysis in SAP S/4HANA

 

New SAP Press Book

 

Production Variance Analysis in SAP S/4HANA

 

  

Table of Contents

 

2222

 

 

Introduction

Welcome to the latest SAP S/4HANA edition of this groundbreaking SAP book.

The first edition in 2007 was the first-ever book on SAP Controlling (CO), which explains SAP CO in an easy-to-understand way and has continued to be popular and attract positive reader feedback and comments from our SAP Controlling community.

The 2nd edition was released in 2011 with a revised and improved layout, and new content based on SAP ERP 6.0, continued as a best-seller, and has remained in the SAP Press catalog.

To completely transform the book to the latest SAP S/4HANA version, I asked Janet Salmon, Chief Product Owner of Management Accounting at SAP SE, to co-author with me. We've included  S/4HANA version 2021 screenshots and content throughout the book, and S/4HANA version 2022 in the new chapter 7 on event-based processing, SAP Fiori Apps and the future direction of SAP S/4HANA.

Chapter 7 discusses new options for variance analysis delivered with SAP S/4HANA Cloud when you use scope item 3F0 (Event-Based Production Cost Posting) and SAP S/4HANA 2022, with the business function for universal parallel accounting.

 

We're excited to have our book published with SAP Press on Jan 26, 2023.

Please find a chapter-by-chapter review of the updated contents and structure in this blog.

 

 

Chapter 1 Initial Planning

We provide an overview of the planning process to set the baseline for variance analysis.

SOP

Figure 1 Sales and Operations Planning

We look at sales and operations planning (S&OP) as shown in Figure 1. We also examine long-term planning to determine the raw materials to be purchased and the available manufacturing capacity to be reserved.

 We look at cost center planning and how to combine the planned expenses and activity usage with setting the plan activity rates for activities.

 

 

Chapter 2 Cost Estimates

We introduce master data, explaining the material master, BOM, routing, and work center to create cost estimates as shown in Figure 2.

We present the role of the costing sheet in determining the overhead to be applied to your raw materials and manufacturing activities. We also discuss configuration settings for the cost components and the costing variant

cost estimates

Figure 2 Cost Estimate BOM and Routing

We then provide instructions for creating and releasing a cost estimate to set the standard price for a single material. We introduce the costing run to develop the standard costs for all materials in a plant. Where multiple production options exist for a material, we explain how to use a mixed cost estimate to combine different production or procurement alternatives to deliver one standard cost.

 

 

Chapter 3 Actual Costs

We introduce the Universal Journal and its impact on primary and secondary costs. We walk through the steps on the shop floor such as production order and process order activity confirmation and component goods issue that result in actual postings as shown in Figure 3.

One of the fundamental changes in SAP S/4HANA is that the work center and operation are now part of the data structure for variance analysis.

2361 03 003

Figure 3 Production Order Actual Costs During Goods Issue

 

We introduce two new critical SAP Fiori apps:

  • Production Cost Analysis (ID F1780)

  • Analyze Costs by Work Center and Operation (ID F3331)

 

 

Chapter 4 Period-End Processing

We explain how to configure SAP S/4HANA to calculate production variances and the variance categories to demonstrate their impact, including cost center and purchase price variance PPV.

We include detailed examples to help you easily understand period-end processing including overhead, Work in Process WIP, variance calculation and settlement.

2361 04 022a

Figure 4 Variance Splitting Profile
We explain actual costing and how it rolls up purchase and production variances through the value chain as shown in Figure 4.

 

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Chapter 5 Scrap Variance

We walk through scrap calculation.

2361 05 037

Figure 5 Component Scrap Increases Component Input Quantity

We explain the types of scrap, including Assembly Scrap, Component Scrap, and Operation Scrap, and their interaction as shown in Figure 5.

 

 

Chapter 6 Reporting

We explain the impact of production variances on product profitability and walk through the options to analyze data in detail.

2361 06 030

Figure 6 Standard Cost Center Reporting

We look at standard reports in detail including Cost Center Reporting as shown in Figure 6.

We explore both classic reports and tools and SAP Fiori apps.

 

 

Chapter 7 Future Direction of Variance Analysis

We show how SAP is moving away from calculating production variances at period-end toward a new approach that sees the production variances calculated with every final goods receipt, known as event-based variance analysis as shown in Figure 7.

 

Event based

 Figure 7 Event-Based Production Cost Cycle

 

Chapter 7 explains scrap and mixed price variances.

Chapters 1 to 6 are written and illustrated based on an on-premise SAP S/4HANA 2021 system.

Chapter 7 discusses new options for variance analysis delivered with SAP S/4HANA Cloud when you use scope item 3F0 (Event-Based Production Cost Posting) and SAP S/4HANA 2022, with the business function for universal parallel accounting.

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If you have any questions, please: Contact Us

 

Glossary

 

Bill of Material

A bill of material (BOM) is a structured hierarchy of components necessary to build an assembly. BOMs, and purchasing info records allow cost estimates to calculate material costs of assemblies.

Cost Center      

A cost center is master data that identifies where the cost occurred. A responsible person assigned to the cost center analyzes and explains cost center variances at period end.

Cost Estimate  

A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines material costs by multiplying BOM quantities by the standard price, labor costs by multiplying operation standard quantities by plan activity price, and overhead by costing sheet configuration.

Costing Run

A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.

Costing Variant

The costing variant contains information on how a cost estimate calculates the standard price. For example, it determines if either the purchasing info record price is used for purchased materials, or an estimated price is manually entered in the Planned price 1 field of the Costing 2 view.

Event-Based Processing

As of SAP S/4HANA release 2022, event-based processing is available, where goods movements and confirmations represent events that trigger the calculation of overhead according to the costing sheet. Then, depending on the status of the order, this triggers either the posting of a journal entry for the work in process (WIP) or the cancellation of any existing WIP and the calculation of production variances.

Goods Issue

A goods issue is the movement (removal) of goods or materials from inventory to manufacturing or to a customer. When goods are issued, it reduces the number of stock in the warehouse.

Long-Term Planning    

Long-term planning allows you to enter medium- to longer-term production plans, and simulate future production requirements with long-term MRP. You can determine future purchasing requirements for vendor RFQs, update purchasing info records, and transfer planned activity requirements to cost center accounting.

Master Data    

Master data is information that stays relatively constant over long periods of time. For example, purchasing info records contain vendor information such as a business name, which usually doesn’t change.

Material Master         

A material master contains all the information required to manage a material. Information is stored in views, and each view corresponds to a department or area of business responsibility. Views conveniently group information together for users in different departments, for example, sales and purchasing.

Procurement Alternative

A procurement alternative represents one of a number of different ways of procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is single-level procurement, while production is multilevel procurement.

Production Variance

Production variance is a type of variance calculation based on the difference between net actual costs debited to the order and target costs based on the preliminary cost estimate and quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are for information only and are not relevant for settlement.

Purchase Price Variance

When raw materials are valued at the standard price, a purchase price variance will post during goods receipt if the goods receipt or invoice price is different from the material standard price.

Raw Materials

Raw materials are always procured externally and then processed. A material master record of this type contains purchasing data, but not sales.

Routing

A routing is a list of tasks containing standard activity times required to perform operations to build an assembly. Routings, together with planned activity prices, provide cost estimates with the information necessary to calculate labor and activity costs of products.

Sales and Operations Planning

Sales and operations planning (SOP) allows you to enter a sales plan, convert it to a production plan, and transfer the plan to long-term planning.

Settlement

Work in process (WIP) and variances are transferred to Financial Accounting, Profit Center Accounting (PCA), and Profitability Analysis (CO-PA) during settlement. Variance categories can also be transferred to value fields in CO-PA.

Standard Price

The standard price in the Costing 2 view determines the inventory valuation price when price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.

Universal Journal

The efficiency and speed of the SAP HANA in-memory database allowed the introduction of the Universal Journal single line-item tables ACDOCA (actual) and ACDOCP(plan). The Universal Journal allows all postings from the previous financial and controlling components to be combined in single items. The many benefits include the development of real-time accounting. In this book, we discuss both period-end and event-based processing.

Work Center    

Operations are carried out at work centers representing; for example, machines, production lines, or employees. Work center master data contains a mandatory cost center field. A work center can only be linked to one cost center, while a cost center can be linked to many work centers.

Work in Process

Work in process (WIP) represents production costs of incomplete assemblies. For balance sheet accounts to accurately reflect company assets at period end, WIP costs are moved temporarily to WIP balance sheet and profit and loss accounts. WIP is canceled during period-end processing following delivery of assemblies to inventory.

 

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Tuesday, 07 February 2023

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