PRODUCTION ORDER SETTLEMENT WITH VARIANCE

Variance is a concept, which comes into the picture when there is difference between the planned and
the actual values with respect to raw material costs, overhead costs or the activity costs. Example: To
produce laptop (finished goods) two raw materials i.e. Hard disk and RAM are required in 1 quantities
each. If at the time of production we issue 2 quantities of Hard disk and RAM as compared to 1 quantity
which was maintained in planned cost then there comes variance into the picture in the form of raw
material costs.

TESTING STEPS
1) Creation of Purchase Order (ME21N)
We need to create PO so as to get the raw materials into our stock which will be used for the
production of the finished goods.

2) Goods Receipt (MIGO)

Once PO has been created, we will use the T-code MIGO so as to procure the raw materials from
the vendor and store it into our warehouse.
3) Overview of the Planned Costing (CK11N)
Here we will have an overview of the planned costing data before moving on to the variance
scenario.
4) Creation of Production Order (CO01)
In this step, we will create the production order with respect to the number of finished goods,
which needs to be produced.
Now go to operation overview tab at the top and have a look at the operations, which needed
to be performed.

Now go to component overview tab at the top and have a look at the components which will be
used for the finished product.
 In standard product planning to produce one quantity of finished goods, one quantity of every
raw material was required. In production order, we maintained five quantities of finished goods
to be produced. So in this case five number of each raw material will be required to produce five
quantities of finished goods.

5) Release of Production Order (CO02)

Unless and until production order is not released we cannot issue the raw materials to the
production department for the production of finished goods.
6) Checking of Raw Material Stock (MB52/MMBE)
In this step we will check the stock of the raw materials which will be required to produce the
finished goods.
7) Issue of Raw Materials against Production Order (MIGO)
In this step we will issue the raw materials to the production department against the production
order.

As shown in the above screenshot there in change in the quantity of some raw materials.
8) Confirmation of the Production order (CO15)
Here in this stage production order needs to be confirmed with the finished goods so produced.
We need to put the actual number so produced and click on the SAVE button.

9) Checking of the Production Order so as to check the Variance (CO03)

Once the production order is confirmed we will be able to fetch the variance if there is any
change in the quantity of raw materials so used in producing the finished goods.
 Here there is variance in raw material cost as there was a difference in the quantities of raw
materials to be used in the production order and the quantity actually issued to the production
department for production.

10) Booking of the Actual Overheads (KSI2)

Here we will book the actual overheads which was incurred at the time of producing the
finished goods. If there will be any difference between the planned and the actual one then the
cost report will show variance as shown in the above point. Since in our scenario we did not
include cost sheet, so there will be no variance. But then too it’s good to confirm the overheads
by running the T-code.

Click on execute button

Here it is showing inappropriate status as I have already confirmed and closed the order earlier.

Once there is no error, remove the test run and execute it again.

After confirmation of the overheads again check the costing report of the finished material.
11) Receipt of Finished Goods to Stock (MIGO)
At this stage, we will receive the finished goods from the production department into our stock.
12) Calculation of Variance (KKS2)
Here we will run the t-code so that the system calculates the variance. It is to be noted that
there won’t be any accounting entry as the system is calculating the variance and no settlement
is done.
Click on execute button
This system is showing error as I have already taken the variance run earlier and have closed the
order.

If there are no errors, remove the test run and click on the execute button.
13) Settlement of Variance (KO88)
After calculation of the variance, next step is to settle the cost. At this stage system will generate
an accounting entry.
Go back and click on execute button.

I am getting this error since I already settled and closed the production order

If there are no errors remove the test run and click on the execute button. Following accounting
entry will be generated.
14) Closing of Production Order (CO02)
After the settlement of the variance is done we need to check the balance of the production
order and close it so that there won’t be any changes in the near future.
Now close the order
Go to functions in the above tab and click on restrict processing. After that click on complete
technically and SAVE it.

Again go to functions and click on restrict processing. After that click on close and SAVE.

Now the production order is closed.

SAVE.