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How Production Variances Can Be Created When The Stock Is Valuated Using MAP?

sanjay_ram
Participant
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Hi,

I was reading the following paragraph from here help.sap.com/saphelp_di471/helpdata/EN/db/606dcb2ed211d38a6b0000e83234f3/content.htm about using MAP price for Finished Goods, and wondering what do they mean by variances in production orders? How can variances in production orders happen when the full amount of the debit side will be posted to Stocks since the stocks are valuated with MAP price?

For example :-

Total Debit Cost of production order A = $1000

GR into inventory valuated with MAP = = -$1000

Production order A balance = $1000 - $1000 = 0

As you can see above the total cost of the production order will be posted to stocks valuated using MAP price. In this case how can there be a variance popping up in the production order all of a sudden? Please help me to understand this part :-

During the settlement of variances on manufacturing orders, the system checks whether a corresponding stock coverage exists for the respective material. If multiple manufacturing orders were completed during a period and the material stock at the end of the period is smaller than the sum of the receipts from production orders, variances from all production orders are allocated to the material stock, assuming adequate stock coverage.

The individual orders do not check whether the period ending inventory was already debited with variances from another order!

Accepted Solutions (0)

Answers (4)

Answers (4)

ajaycwa1981
Active Contributor
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Hi Sanjay

Your understanding is wrong..

Assume GI Value + Overheads = 1000 $

GR Value - Not necessary that it will be 1000... GR always happens at the material master price.. So, the prevailing MAP at that point of time, will decide the GR Value... Assume it is 1050 at that time. So, the GR will happen at 1050.. Prod order will now have a variance of 50

Now, this will lead to a dangerous situation... Let me explain how..

Assume, you have total stock of 10 at the month end...

You created 10 Prod orders of 10 Qty each... 90 were sold and 10 left in stock.. Assume, Each Prod order has variance of 50..

Now, while settling each Prod order variance, system will compare the Qty in Stock Vs Qty of Prod order.. It will match i.e. 10 = 10.. Hence, the variance of 50 gets inventorized...

This process will repeat for all the 10 prod orders, and the total variance of 500 (50 * 10) gets inventorized. This will lead to drastic mess in invemtory valuation.. i.e. where you should inventorize only 50, you will end up inventorizing 500

Hope this is clear..

Br, Ajay M

sanjay_ram
Participant
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Dear Ajay and Rajneesh,

Firstly thank you for sharing your opinion. However i have a different opinion about the fact how variance can result in MAP priced production orders. To my knowledge if a stock is MAP priced, then whether it is a purchase order or production order, the computation should be like this :-

Step 1) Debit the full cost and qty of purchase order/production order to stock value and qty respectively.

Step 2) Total new cost of the stock divided by the total new qty of the stock will derive the new MAP price.

Please see the SAP explanation below about this :-

This graphic is explained in the accompanying text

Hence i believe the variance can be created in purchase orders/production orders, only in the event of value only postings as follows :-

For purchase order scenario :-

During invoice receipt with different price and during subsequent debit/credit

For production order scenario :-

If during settlement if there are any new costs which are not posted to stocks during the earlier GRs. This can happen if the activity type actual price differs from the KP26 plan price and so happen that the actual activity price calculation happened after the earlier GRs. If the actual activity price was calculated before the first GR then this new cost would have been posted to stocks during the GR itself and in this case during settlement there won't be any cost left out un-posted to stocks.

This is same like the purchase order scenario as well like this :-

GR from purchase order = GR from production order.

Invoice price different from purchase order = Production order got new cost after actual activity price calculation.

Hi Ajay,

Secondly with regards to the challenge during settlement, i was wondering about this statement of yours "i.e. where you should inventorize only 50, you will end up inventorizing 500" because based on your example, the way i look at it, the total variance should be posted to stocks should be 500 indeed since you claim there are 50 dollars of price variance in each production order. So 50 X 10 production orders should be 500 indeed. So why do you say only 50 should be posted to stocks?

ajaycwa1981
Active Contributor
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Hi

Because out of 100 produced, 90 is consumed and only 10 is in stock

sanjay_ram
Participant
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Hi Ajay,

Great i understand it now. Then are we in agreement of the way how MAP is calculated or still having our own views on this?

Secondly i see the issue of variances being created in production orders due to late activity price calculation after GR can be easily controlled by making sure the GR is done only after the actual price calculation. This late GR should not cause a problem if the business can make sure that there are sufficient stock balance left out to meet the sales deliveries without depending on the GR from current production orders.

Will you guys concur with me on this?

ArturoSenosain
Advisor
Advisor
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Hi.

More info in this OSS, and SAP recommendation!

SAP Note 81682 - Pr.contr.V for semi-finished and finished products

Arturo.

rajneesh_saxena
Active Contributor
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Dear Sanjay

Further to add my earlier reply:

The para you mentioned describes the disadvantage of using MAP for your in house manufactured products, if the production order is having variances due to the reasons given in my first reply (mainly the second point).

Regards

Rajneesh Saxena

rajneesh_saxena
Active Contributor
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Dear Sanjay

1.     In your example, GR value=GI value may not be possible at all the times. As for FG MAP will be picked up which is created based from the just previous production order. As the BOM components are also at MAP so their MAP are always changing. Gor for GI to previous order may not be actual to the GI of this order.

2.     Activity prices (if the two consequtive orders are falling in different periods) may also play a role in changing the value of GR between the two orders.

In above cases the order may have the variances.

regards

Rajneesh Saxena