The key takeaways are the different types of WIP variances like final completion, period close and job close variances and the scenarios that can lead to a job close variance.
The different types of WIP variances are final completion variance, period close variance and job close variance.
Some scenarios that can lead to a job close variance are component cost changes, components issued for dummy operations, WIP assembly scrap transactions, components issued after completion is performed with the final completion flag checked and under/over issue of components.
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Understanding Different Types of
Variance Transactions in WIP Costing Saranya Selvaraju Christopher David <Insert Picture Here>
Types of WIP Variance Transactions Final Completion Variance Period Close Variance Job Close Variance
Different Scenarios leading to Job Close Variance Component cost changes Components issued for dummy Operation WIP Assembly Scrap transaction Components issued after completion is performed with the Final completion flag checked Under issue/ Over issue of components
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Terminologies Used
Cost Incurred - Cost Incurred is the actual cost that was incurred to build an assembly. It includes the sum of all the material transactions and the resource transactions that has taken place for a particular job. Cost Relieved - Cost Relieved is the cost associated with the make item at the time of Assembly Completion. This cost depends upon some setup combinations. The functionality of how cost is relieved in WIP under Average Costing method with different setups are described in detail in the Doc ID 1326836.1 - A Guide To WIP Costing For Average Costing Method Net Activity The value residing in WIP at any given time Variance - The value that gets flushed out from WIP
Types of WIP Variance Transactions Final Completion Variance This gets generated at the time of completing the job when the net activity is negative and WIP Assembly Completion happens with the Final Completion flag checked
Period Close Variance This gets generated at the time of closing the period when there is net activity for a Non-standard expense job.
Job Close Variance - This gets generated at the time of closing the job for the difference between Cost Incurred and Cost Relieved WIP Accounting Class WIP Accounting Classes contains the WIP Valuation and WIP Variance Accounts. Navigation: WIP - Setup - WIP Accounting Classes Final Completion Variance When Final completion is checked, all other setups will get over ridden and the Cost Relieved will be equal on the Cost Incurred so that the net balance in WIP is zero.
However, when the Cost Incurred or the net activity is negative and since the completion cost cannot be negative, the assembly is costed at zero (Cost Relieved is zero) and the net balance goes as Final Completion Variance Final Completion Variance Create an assembly and a purchase item. Attach the purchase item to the assembly in BOM. Receive 100 components at unit cost of 5 Create a department and a resource. Associate the department to the resource Create routing having one sequence 10 with the department added and resource attached.
Final Completion Variance Create a std job for the assembly with job name 'wip-final'.
Perform WIP Negative issue for 1 quantity for the component so that the cost incurred becomes negative (In this case -5)
Final Completion Variance Check the WIP Value Summary
Perform WIP completion with final completion flag checked
Final Completion Variance Since the completion cost cannot be negative, the assembly is costed at zero (Cost Relieved is zero) and the net balance goes as Final Completion Variance because the net activity should be zero when Completion is done with Final Completion flag checked Table Details Final Completion Var WIP Variance Final Completion Flag Period Close Variance This happens only for non standard expense jobs because these jobs are not meant to relieve value in the form of completion
They are used to do non asset building activities such as repairs Non standard expense jobs are period costed. Only a monthly account (specific period) of what has been spent is needed. WIP Value does not carry over to next period. This occurs for all costing methods
Period Close Variance Create a non std expense job test-job
Add a component which has unit cost 5 Issue the component. Check the WIP Value Summary showing a net activity of 5
Period Close Variance
Now close the Inventory Period (Feb-2009 in this case)
The inventory period is now closed Period Close Variance Now check the WIP Value Summary again
Period Close Variance transaction is generated Table Data Period Close Variance WIP Variance Job Close Variance Variance scenarios
1) Component cost changes between issue and return 2) Component issued for dummy Operation 3) Assembly Scrap without issuing component 4) Components issued after completion with final completion checked 5) Under issue/ Over issue of components
Case 1: Component cost changes
Create an assembly and a purchase item Attach the purchase item to the assembly in BOM with supply type Assembly Pull. Receive 100 components at unit cost of 5. Create department and a resource Associate the department to the resource Create routing having one sequence 10 with department added and resource attached Component cost changes
Create a std job for the assembly with job name 'wip-return'. Move and complete one quantity. Component is backflushed.
Component cost changes
The component cost is now changed to 12.77 through an average cost update Perform WIP Assembly Return The Assembly was returned at the cost in which Completion was done However, the Component was return at the current item cost(12.77) and not at the cost in which it was issued, hence the cost incurred becomes 5-12.77= -7.77
The component cost is now again changed to 5 through an average cost update and component is issued once again Now Complete and Close the job.
Table Data Job Close Variance WIP Variance Case 2: Component issued for dummy Operation Consider the below scenario:
Create an assembly 'A1', purchase item 'C1', attach the 'C1' to 'A1' in BOM. Supply type is Push. No routing is created. Receive 100 quantities of the item 'C1'. Create a std job for 'A1'. The component will be associated to op seq 1 in wip_requirement_operations table since there is no routing. Do the WIP material transaction for that component Component issue is done at op_seq 1. There will be a record with op seq 1 in the table wip_req_operation_cost_details. Cost is incurred here.
Component issued for dummy Operation
Now, add an op_seq 10 in the job. This op_seq 10 is synched with wip_requirement_operations. But wip_req_operation_cost_details has applied value only for op_seq 1. This would result in incorrect costing. At the time of completion, wip_requirement_operations doesn't have op_seq 1 and wip_req_operation_cost_details doesn't have applied value at op_seq 10. That will make the completion value zero since the wip_requirement_operations serves as a header table for wip_req_operation_cost_details. Since the cost is incurred and relieved value is zero, there is a net activity which moves to variance in the form of job close variance transaction at the time of closing the job
Component issued for dummy Operation
A fix was provided from WIP side to prevent adding new operation when material was transacted against op_seq 1. Below are the bug fixes for different versions: 9822688 (in 12.0.x) 9494799 (in 12.1.x) 9798517 (in 11i)
There was a further fix in 11i to allow adding operations but the transacted Operation less requirements will remain in dummy op 1 instead of moving them to the newly added operation as it causes issue with costing. The fix is through 12597786 (in 11i)
Case 3: Assembly Scrap without issuing component
Create an assembly 'scrap-a and a purchase item 'scrap-c'. Attach 'scrap-c' to 'scrap-a' in BOM with supply type Push. Receive 100 components 'scrap-c' at unit cost of 10. Create Routing for scrap-a with two operations Create a std job 'test-scrap' for 'scrap-a Perform move transaction from op 10 queue to op 20 scrap. Scrap account has to be specified.
Scrap value is calculated for the standard requirement till (including) the operation at which the scrap is done. On performing assembly scrap the value of 10 (because the component is associated to the operation which was involved in scrap transaction) is relieved resulting in net activity having -10.
Closing the job will result in -10 value moving to WIP variance
Assembly Scrap without issuing component
Case 4: Components issued after completion with final completion checked When a job is completed with final completion flag checked the net activity will be made zero and the same will be distributed to the assemblies unit cost. When a component issue/return is made after performing the completion (with final completion flag checked), a net balance will be in WIP. On job closure this net balance will moved to variance through job close variance transaction. The sequence of transactions for the respective WIP job can be verified in the mtl_material_transactions table
Case 5: Under issue/ Over issue of components
When the components are over issued or under issued and the WIP Completion is performed with Final Completion flag unchecked then there will be a balance remaining in WIP Value. This on job closure will have a job close variance generated for that net value. It can be verified from wip_requirement_operations table by checking the quantity_required and quantity_issued columns.
Diagnostics Diagnostic script wipjob11i.sql (Doc ID 316142.1)
Job.sql - Data Collection Scripts for Cost Management (Doc ID 378348.1)
References:
Doc ID 1326836.1 - A Guide To WIP Costing For Average Costing Method How To Approach Issues Related To WIP Reports Not Tallying With GL And Issues Of Cost Relieved Not Matching Cost Incurred (Doc ID 815363.1) R12 WIP and Costing User Guides