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Realize the potential of sap material ledger

http://veritysolutions.com.au/2010/11/24/improve-productivity-and-reporting-with-sap-material-ledger/

Realize the potential of sap material ledger

  1. 1. REALISE THE POTENTIAL OF SAP MATERIAL LEDGER
  2. 2. TABLE OF CONTENTS MATERIAL LEDGER OVERVIEW 3 MATERIAL LEDGER VALUATION 12 8 TRADITIONAL VALUATION APPROACHES 19 ACTUAL COSTING
  3. 3. MATERIAL LEDGER OVERVIEW
  4. 4.  Does your Organisation want to value Inventories in multiple currencies in real-time?  Does your Organisation want to value Inventories at Standard Cost and also want to evaluate Inventories at Moving Average Cost?  Does your Organisation want to amortize purchase and production variances over the life of the Inventories?  Does your Organisation want an effective Transfer Pricing mechanism between your various businesses within the same legal entity? (covered in a separate presentation) If you have answered yes to any of the above, then implementing SAP Material Ledger will automate the process and significantly improve productivity for your Organisation. Factors driving the implementation of Material Ledger
  5. 5.  Multiple Currency  Allows Inventory values and Inventory transactions to be valuated in local currency and group currency  Multiple Valuation  Combine the benefits of Standard Price Control for preliminary valuation and Moving Average Price Control for Balance Sheet valuation  Enable accurate periodic valuation  Settle proportionate price variances to period end inventories  Roll up price variances throughout the production process  Enable Transfer Pricing for intra-company transfers Material Ledger : Features
  6. 6. What Is Material Ledger? The term "Material Ledger" is a misnomer; it is not a "financial" Ledger but a capture-and-report mechanism of Inventory values It is an enhanced sub-ledger for Materials. Material Ledger tables are the base tables that capture Material valuation data like goods movements, price changes, variances. If Material Ledger is set up for multiple currencies and these currencies are aligned with currencies in Financial Accounting, then Material Ledger values reconcile with Financial Accounting values in all aligned currencies.
  7. 7. Multiple Currency Views Of Material Master Activating Material Ledger (ML) allows you to view Material Master Inventories and transactions in multiple currencies. It is recommended to map FI and CO currencies to ML. This will allow easy reconciliation between the various ledgers. In the above example, company code currency is the legal view and group currency is used for group costing and profit center (Transfer Price) view ML generates 6 views: • current period/ current year • previous period/ current year • Last period/ previous year • Future Costing Run • Current Costing Run • Previous Costing Run In this example, all Material movements post in 2 currencies (EUR, AUD) and 3 valuations (legal, group, profit center) in Financials and ML.
  8. 8. TRADITIONAL VALUATION APPROACHES
  9. 9.  Organizations had to choose between Standard Cost and Moving Average Cost as the basis for valuing Inventories  Both methods had its advantages and disadvantages. Neither solved the issues faced by Organizations in a dynamic market place  Organizations were looking for a hybrid of Standard Cost and Moving Average approaches  Material Ledger allows organizations to value Inventory and transactions at Standard Cost during the month. It provides Periodic Moving Average price as information during the month and (optionally) as a basis for re-valuing inventories at the end of the month Traditional Valuation Approaches
  10. 10. Moving Average price is adjusted with every receipt and hence gives a real-time value for materials. However, this value is distorted when variances and price differences are settled to Inventories. Material Valuation: Moving Average Period 1 Period 2 Settlement of Variances to Inventories
  11. 11. Standard Price allows comparison of actual costs with standard and hence better evaluation of variances. However, using standard price to valuate inventories provides poor visibility of actual costs. There could be significant lead time before standard prices could be adjusted. Selling prices dependant on out-of-date standard cost could lead to lower margins. Material Valuation: Standard Cost Period 1 Period 2 Settlement of Production Variances to P&L
  12. 12. MATERIAL LEDGER VALUATION
  13. 13.  A Periodic Moving Average price is the moving average price of that period. This price avoids the fluctuations seen in Traditional Moving Average price and is more dynamic than Standard price.  Organizations can choose to valuate their Inventories at Standard Price as preliminary valuation during the month. Periodic Moving Average price is available as analytical information in Material Ledger Periodic MAP = (Cumulated Receipts at Standard Price) + (Cumulated Price Differences) Cumulated Receipt quantity Example = (126 tonnes * 900 AUD) + 2,106.90 AUD = 916.72AUD/tonne 126 tonnes Periodic Moving Average Price
  14. 14. Material Valuation: Periodic Moving Average Price Settlement of Production Variances to P&L Period 1 Period 2 Revaluation of Standard Cost based on PMAP Period end Periodic Moving Average Price Standard Cost
  15. 15. Material Price Analysis – In Group Currency Allows you to view the report in multiple currencies/ valuation Real-time valuation at Standard Cost Periodic Moving Average Price
  16. 16. Material Price Analysis – In Company Code Currency ML calculates Periodic Moving Average real-time Now in Company Code (Legal) currency Traffic Light display whether ML closing has run
  17. 17. Material Price Analysis – Cost Component View Actual Costs split by Cost Components in real-time
  18. 18. Material Price Analysis – Price History View Price History view
  19. 19. ACTUAL COSTING
  20. 20. During the period, materials movement are valued at standard price. Material Ledger stores all price differences as they occur. This allows Material Ledger to produce reports (Material Price Analysis) that evaluate the Periodic Moving Average Price of the material in real-time Actual Costing Process Flow MATERIAL LEDGER • Records Actual Values throughout the period • Inventory Valued at Standard Price • Materials reported at Standard Price and Periodic Moving Average Price Raw Materials (Receipts / Invoices) Purchase Price Variances (PPV) Exchange Rate Variances Finished/ Semi Finished Materials (Process Orders) Production Variances Transfer Variances Actual Costing (period end) Single-level Price Determination • Puts PPV and Exchange Rate Variance back to specific raw materials Multi-level Price Determination • Puts Production Variance and Transfer Variance back to finished/semi finished goods Post Closing (optional) • Posts adjustments to inventory and consumption to reflect actual value
  21. 21. What Is Price Determination? Price determination is the process whereby Material Ledger calculates and assigns the Periodic Moving Average price of materials to consumption and Inventory Single-level price determination of component material is calculated based on the standard price of the material, and its price variances Multi-level price determination of built materials is calculated based on the standard price of the material, its price variances, single level price differences, and input material differences
  22. 22. Determination Of Periodic Unit Price In this step, Material Ledger assigns the Periodic Moving Average Price to closing Inventory. This is only a calculation and does not result in adjustment to Inventory values.
  23. 23. Material Ledger Closing (Optional) Material Ledger allows (as an optional period close activity) revaluation of Inventories at Periodic Moving Average price. Technically, SAP switches the Price Control for the material from S (standard) to V (Periodic Moving Average) for the period for which the Material Ledger is closed This activity generates price change accounting document in Financials The Price Control for the next period remains at S (standard). Hence, the price change document posted in the previous period (that was closed) will be reversed automatically in the next period.
  24. 24. Material Ledger Closing (Accounting Entries) BI 0.00 GR 80,589.60 CE 301.35 Material Stock CO 63,960.00 IR 82,050.00 GR/IR Clearing GR 82,050.00 Accounts Payable Price Difference GR 1,460.34 CE 301.35 Material Consumption CO 63,960.00 Tonne EUR Std Cost Price Diff Tonne EUR EUR @ STANDARD COST @ PERIODIC MAP Beginning Inventory (BI) 0 639.60 0.00 0 639.60 0 Goods Receipt (GR) + Price differences 126 651.19 80,589.60 1,460.40 126 651.19 82,050.00 Periodic MAP 126 651.19 82,050.00 Consumption (CO) 100 639.60 63,960.00 1,159.00 100 651.19 65,119.00 Ending Inventory (EI) 26 639.60 16,629.60 301.40 26 651.19 16,931.00 IR 82,050.00 AMORTIZATION OF VARIANCES ML transfers back to Balance Sheet that portion of variance as relates to Inventory at hand. This amortized variance will post to P&L in the month this inventory is consumed/ sold
  25. 25. After Material Ledger Close
  26. 26. Material Ledger Accounting Entries (Closed Period) In company code currency In Group currency
  27. 27. Material Ledger Accounting Entries (Next Period) In company code currency In Group currency
  28. 28. Verity provides the vision, and the framework for a successful Finance process and technology transformation and re-engineering. We at Verity believe we have the experience to make success happen for our clients. This belief comes from our track record of successfully engaging customers in their pursuit of the best-of-class business solutions. We believe that this search with Verity is short because of our past experience, and fruitful because we do not simply deliver an end-result, but strive to deliver value-added service that earns us the trust and confidence of our customers. Verity Business Solutions
  29. 29. Rajesh is an accomplished and successful Finance professional with over 20 years’ experience in Finance processes and related technologies. He is a qualified accountant, and he has worked in Finance departments of multinational companies. With this strong foundation in Finance, he has managed to successfully implement best-in-class Finance processes in IT (primarily SAP). Over the last few years, Rajesh has led Finance teams on large SAP implementations and provided his insights and experience to provide a workable and an improved solution for his customers. Rajesh is a SAP Certified Application Professional. Presented by Rajesh Shanbhag
  30. 30. CONTACT US VERITY BUSINESS CONFIDENTIAL 30 www.veritysolutions.com.au @rshanbhag au.linkedin.com/in/veritysolutions rajesh@veritysolutions.com.au https://plus.google.com/+RajeshShanbhag/

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