If there is a difference between the value of the issued components and the received products, this results in production variance, which is referred as total variance in the application. Production variance often occurs because of the following:
1. Component overconsumption: The quantity of components consumed in production was greater than planned, which causes a negative variance.
2. Component savings: The quantity of components consumed in production was less than planned, which causes positive variance.
3. "Receipt before issue" scenario: The receipt from production is added before the issue for production. In this scenario, the product cost is based on the product cost estimation, which is derived from:
a) The current production order structure (in other words, the list of production order components along with their planned quantities).
b) The current component cost.
If the production order structure or component cost changes in between adding of the Receipt from Production and the Issue for Production, this results in production variance.
For products with valuation method other than standard, the following applies:
When closing the production order, the following calculations are made:
Firstly, the system sums the values of the received products and by-products from all receipts from production.
Secondly, the system sums the values of the issued components from all issues for production and receipts of returned components.
If there is a difference between the two summed amounts, the difference is referred to as total variance in the application and is shown on the Summary tab of the production order. During closure of the production order, the product is revaluated according to the actual cost of the issued components. This way, all product cost estimations are replaced with actual costs from the issues for production, and the production variance is usually cleared.
Production order closure: In this posting, any existing production variance is potentially cleared and the product cost is adjusted according to this value. The posting behind the closing of a production order consist of the following steps:
1. If a difference exists between the value of the received product and by-product versus the value of the issued components, this difference is treated as total variance in SAP Business One. Component WIP accounts values are zeroed and transferred to the WIP variance account of the product.
2. The WIP variance account is cleared against the product’s inventory account. In case of a negative variance (for example component overconsumption scenario), the product’s inventory account is debited. In case of a positive variance (for example component savings scenario), the product’s inventory account is debited. However, in special cases when the produced quantity is no longer available in the warehouse at the time that the production order is closed, the total variance is not transferred to the product value and will remain allocated on the production order and the following accounts, based on the product valuation method:
For serial/batch valuated products, the variance remains on the price difference account.
For MAP/FIFO valuated products, the variance remains on the WIP variance account.
The variance report enables you to view the amount behind the production order closure posting.
Hope, this helps.