3. How is Material Valuated in
SAP?
depends on the price control that was set
for the material in the material master.
1. Moving Average
Price (V-Price)-
- Adjusted with every
receipt
- If at all, only to be
used for raw materials
and materials
procured externally
2. Standard Price (S-
Price)
- Constant or Stable for long
period.
- Recommended for all
material types
3. Material Ledger:
- Standard Cost during the
month
- Periodic Moving Average
Price at the month end.
Costing
Methodology
3
4. What is Material Ledger?
Sub ledger of GL ,Management Tools
1- The term "Material Ledger"
is not a "financial" Ledger but a
capture-and-report mechanism
of inventory values.
2- It is an enhanced sub-
ledger for Materials.
ML tables are the base for
Material valuation data like
goods movements, price
changes, variances.
4- Enable the calculation
of the periodic unit price
for each material before
the period close (can be
used as next period
standard).
Material
Ledger
5. A fundamental task of the
material ledger is managing
inventories in multiple
currencies and/or valuations
3- 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.
4
5. Driving Factors for implementing
Material Ledger
Do we need Material Ledger at ABC ?
Does ABC want to value inventories in
multiple currencies real-time?
Does ABC want to value inventories at
standard cost but also want to evaluate
inventories at moving average cost?
Does ABC want to amortize purchase and
production variances over the life of the
inventories?
YES / NO ?
Does ABC want an effective transfer
pricing mechanism between its various
businesses across legal entity?
Does ABC want to support Different Global
Statutory Reporting requirement by Company
Code (FIFO/LIFO)?
5
6. FEATURES OF MATERIAL LEDGER
Do we need Material Ledger at ABC
?
1.Actual Costing.
During the period, valuation of all goods
movements is done with the preliminary
valuation price which is normally the
standard price. All variances from the
preliminary valuation are maintained in the
ML. At period end, revaluation of ending
inventory can be performed with the
determined actual price. This is not
mandatory. Actual prices can be calculated
for statistical purposes only.
2.Parallel currencies and/or
valuations of material stocks.
All goods movements in the ledger
can be maintained in 3 currencies.
The values are translated into
other currencies using the
historical exchange rates.
Prerequisite for usage of transfer
pricing functionality.
3. Information
Provide accurate
profitability information.
What Else?
6
7. Weighing the Pros and Cons of the SAP Material Ledger
SAP – Without ML /LEGACY
Single Material Valuation
Strategy
(what Else?)
SAP – Material Ledger
•Multiple Currency
–Allows Inventory values and Inventory
transactions to be valuated in local
currency and group currency (Up to 3
Currencies)
•Multiple Valuation
–Combine the benefits of Standard Price
Control for preliminary valuation and
Moving Average Price Control for Balance
Sheet
–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
ML generates 6 views:
7
8. Benefits of Material Ledger for ABC
Integrate planning with a single
model across ABC to improve
organizational alignment and
Financial Performance.
What
Else?
Provides global unit cost
information across
plants and legal entities
providing an global
transparent view of
costs and variances
Integrate and
align cost
structure to
reduce cost
Maximizes
corporate
profitability
Analytical information by
scorecards, statutory
reports, and
performance analysis
Value
Inventory in
Multiple
Currencies
Provide
accurate
profitability
information
Provide
real-time
information
quickly
Revolution
of COGS
8
9. Material Ledger & Periodic Moving Average
Price .
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.
Periodic MAP = (Cumulated Receipts at Standard Price) +
(Cumulated Price Differences) / Cumulated Receipt quantity
E.g = (126 tonnes * 900 USD) + 2,106.90 USD / 126 tonnes
= 916.72 USD/tonne
9
With moving average price control, a new material price is calculated after every goods receipt, invoice receipt, and/or order settlement. This material price is an average value calculated from the total inventory value and the total quantity of the material in stock.
With standard price control, goods movements are valuated with a price that remains constant for at least one period. The standard price that is assigned to a material is usually the result of a standard cost estimate.
The main difference between the two valuation procedures is that the moving average price represents a current delivered price while the standard price is based on planned values and not actual values.
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
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 (for stocks already consumed) are settled to Inventories.
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 dependent on out-of-date standard cost could lead to lower margins.
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 as a basis for re-valuing inventories at the end of the month
Synergy 1+1 = 3
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.
Actual costing valuates all goods movements within a period at the standard price (preliminary valuation). At the same time, all price and exchange rate differences for the material are collected in the material ledger.
At the end of the period, an actual price is calculated for each material based on the actual costs of the period. The actual price that is calculated is called the periodic unit price and can be used to revaluate the inventory for the period to be closed. In addition, you can use this actual price as the standard price for the next period.
•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
–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
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
Integrate and align cost structure to reduce cost
Provides global unit cost information across plants and legal entities providing an global transparent view of costs and variances
Analytical information by scorecards, statutory reports, and performance analysis
Provide accurate profitability information
Maximizes corporate profitability to grow market capitalization and shareholder value
Integrate planning with a single model across the enterprise to improve organizational alignment and financial performance
Provide real-time information quickly
►Variances of Finished Goods
Variances from external procurement (purchase orders) as well as from production activities are rolled up from raw and semi-finished materials to the finished goods level.
►To provide support for procurement related decisions.
Detailed reporting for procurement processes and sources possible. Make vs.. Buy, Vendor A vs.. Vendor B. Price History.
►Combines the benefits of Moving Average and Standard Price
Stable prices used for controlling purposes (standard) and actual prices used for valuation purposes (average).
►Easy to use display and error finding by consolidating the views.
Allows quick access to detailed views of material master, standard costs and documents
►Relatively simple configuration and set up
►True Cost of Sales Accounting
Purchasing and production variances for unsold stocks are inventoried.
►Contribution Margin with Actual Costs of Sales
By utilizing multi-level settlement, actual values for your cost component split can be attained. This can be transferred to PA
