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Understanding Different Types of

Variance Transactions in WIP Costing
Saranya Selvaraju
Christopher David

Agenda

Types of WIP Variance Transactions

Final Completion Variance
Period Close Variance
Job Close Variance

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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

2007 Oracle Corporation Proprietary and Confidential

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 Flag

Final Completion Var

WIP Variance

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