When you run the material ledger actual costing run, you may notice that some variances are displayed in the Consumption folder of the material price analysis as “Not Allocated”. The reason that these variances show up as “Not Allocated” is because the products that produced these variances where not consumed into higher-level materials. For example, if a raw material is issued to the production order of a finished product, then that raw material’s variance can be proportionally rolled into the actual cost of a finished product. However, what if the raw material was consumed to a cost center, instead of a production order? Or what if it was scrapped? In these cases, the variance of that raw material is not normally factored into the receiving object (i.e. the cost center) since this receiving object is not a material. In the past, any variances that meet this criteria end up in this “Not Allocated” and hence remain in the variance P&L account that is tied to that raw material.
Just so you do not think that this scenario is restricted to raw materials, you should know that the most typical example of this issue is when a finished good is sold. In that case, the goods issue is normally to a sales order (once again, not a material) and hence the variance of that finished product (perhaps from settling a production order) ends up not being allocated.
The solution to this issue is the following:
(1) Activate Business Function EA-FIN: (Only available form release 4.7. and higher). You do this in order to display the “Revaluation of Consumption Step” in the Actual Costing Cockpit (CKMLCP). To do this, go to transaction SFW5; Open up the folder called “ENTERPRISE EXTENSIONS”; then activate the “EA-FIN” function by checking the “Planned Status” box and clicking on the button “Activate Changes”. I recommend that you make this setting in your development system and transport it to Production by selecting “System Settings -> Transport” from the top menu.
(2) Define Movement Type Group: You do this in order to specify the movement types that should be considered when the system performs a Revaluation of Consumption. For example if you want goods issues to cost centers and goods issues to sales orders to be considered, then you want to create a Movement Type groups that encompasses their respective movement types (e.g. 201 and 601). Go to transaction OMX7 and enter a 2-digit key for the movement type group and assign it to a “Revaluation of Consumption” indicator of “1” (if you want the variance to be posted to the original G/L account only) or “2” (if the variance is to be posted to the original G/L account and cost object).
(3) Assign Movement Type Group: Here, you simply assign the movement type group created above, to the respective movement types. Using the examples above, you would assign a movement type group which was created with Revaluation of Consumption indicator “2” to movement type 201 (because you want the variance to be posted to a G/L account and cost center) while a movement type group with Revaluation of Consumption indicator “1” will be assigned to movement type 601 (because the variance will only be posted to the cost of sales G/L account).
(4) Assign Account for “Revaluation of Other Consumables”: Note that this step is ONLY needed if you do not perform steps (2) or (3) above. Basically it means that you do not want the variance to be posted to the original G/L account (and cost object) but to a separate G/L account. To do this, go to transaction OBYC, double click on transaction key COC and assign the respective account.
(5) Perform Revaluation Consumption Step: When you run the Actual Costing Cockpit (transaction CKMLCP), execute the parameters for the “Revaluation of Consumption” step; and in the “Post Closing” step check the box “Revaluate Consumption”. If you also want to update the CO object along with the G/L account then check the box “Set CO Account Assignment”.
Note that I know a lot of businesses that are okay with the variances sitting in the “Not Allocated” bucket. Their reasoning is that even when you run the Revaluation of Consumption step, the system simply transfers the values from one P&L account (i.e. the variance account) to another P&L account (e.g. the cost of goods sold account). The decision to run this step is therefore based on business requirements and preferences.