Document 1590017.

1 10/23/18, 2)33 PM

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Batch Close Variances when Standard Cost is Used (Doc ID 1590017.1)

In this Document

Goal
Solution

APPLIES TO:

Oracle Process Manufacturing Financials - Version 12.1.2 and later

Information in this document applies to any platform.

GOAL

Why are Batch close variance journal lines created when Cost method is Standard.

SOLUTION

Please refer to Bug 13531033 : BATCH CLOSE VARIANCES CALCULATED INCORRECTLY IN CASE OF STANDARD
COSTING

" Batch Close Variances calculated incorrectly in case of Standard costing

Profile GMF: Subledger Variance Type = Scale To Actual.

After closing a batch, Usage Variance is calculated.

A. Consider this case.

Formula has two ingredient. One with proportional scaling and one with
integer scaling.

Formula standard quantity is 10.

1) Product A ? quantity 10
2) Ingredient B ? Quantity 1 integer scaling
3) Ingredient C ? Quantity 10 Proportional scaling

There is a batch processed with following quantities.

1) Product A ? quantity 16
2) Ingredient B ? Quantity 2
3) Ingredient C ? Quantity 16

When using Scale to actual Scale quantities are

1) Product A ? quantity 16

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2) Ingredient B ? Quantity 2 Due to integer scaling.

3) Ingredient C ? Quantity 16 Proportional scaling.

Thus this batch will not have any USG or YLD variances created. However there
will be a CLS posting expected for this batch.

The reason is product certification posting which is cerated at rolled up

cost includes only 1.6 quantity of Ingredient B. Due to integer scaling no
variance is written. But while WIP is debited for quantity 2 it is credited only
for 1.6. Remaining 0.4 would go to CLS in this case.".

B. Please refer to OPM Cost management user's guide, cap 2 "Setting up", page 2-27

"Indirect Component Processing for Standard Costing

When standard costs are used, you can update adjustments or indirect components
of standard product costs separately without defining formula routings and/or
overhead details. You can identify the standard indirect cost component, update
non-direct materials and resources within production batches, and reconcile "batch
close" variance at the close of a production batch."

C. Please refer to the same User's guide, cap 10 "Accounting processes and distributions" , page 10-28.

D. Please refer to Bug 13642998 : UNEXPLAINED BATCH CLOSE VARIANCE FOR STANDARD COSTING.

"Variances are difference between cost formula scaled to plan quantity or actual
quantity for primary product( based on Profile GMF: Subledger Variance Type) and
actual quantities in the batch.

To find the costing formula, code uses FMEFF_ID in GL_ITEM_CST. Thus if this
field is NULL no variances would be computed. But since batch is closed, wip
account should still be zeroed out. This is done by creating CLS entries.

Now copy costs may or may not copy FMEFF_ID. There are various reasons.

a) Only ingredient costs may be copied. These can be modified say by a %

when copying. Resource costs may be copied as is. So unless costs are
rolled up again copied product costs may not be correct.

b) Product Costs could even be entered manually. There is nothing stopping

user from entering these.

c) User may have entered costs earlier and is using copy costs after that.
Copy costs also attempts to update existing record in such case.

Thus given these scenario's, user needs to decide Whether FMEFF_ID is copied
or not. Thus it is largely dependent on profile 'GMF: Copy Item Costs - Copy
Recipe information to target'. ( Internal name GMF_CPIC_EFF)

Most likely customer has this profile either unset or set as 'No'. Default value for this profile is 'No'."

E. Cost Allocation indirectly impacts batch close variances.

Cost allocation from the formula would get used in computation of cost.

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Batch close variance is computed after ALL individual variances are computed and would be just (net_batch_wip_debit
- net_variance_debit).

If using standard costing all variances are computed and batch close variance is computes afterwards.

If the parameter is set to use actual quantities in batch to compute variances (GMF: Subledger Variance Type = Scale
to Actual) , the actual quantity of primary product is used to scale the formula.

If actual quantity of the primary product is zero, all usage and yield variances would be logged for ingredients ,
resources and products. All these difference would go to Batch Close Variances (CLS).

If Planed quantities in batch are used to compute variances (GMF: Subledger Variance Type = Scale to Plan), formula
would be scaled to planned quantity of primary product and there would be yield variance logged for primary product
and all other variances. Batch close would still be computed to wip valuation account for the batch.

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