SAP Material Ledger and Actual Costing

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Table of Contents
1.

What is Material Ledger? ......................................................................................................................................3

2.

Where is Material Ledger Used? ...........................................................................................................................3

a.

Actual Costing .......................................................................................................................................................3

b.

Multiple Currencies / Valuations ...........................................................................................................................3

3.

Benefits of the Use of Material Ledger..................................................................................................................4

a.

Periodic Unit Price.................................................................................................................................................4

b.

Accounting ............................................................................................................................................................4

c.

Transparency of Value Chain ................................................................................................................................4

d.

Actual Prices with Cost Component Split .............................................................................................................5

e.

Actual Values in Profitability Analysis .................................................................................................................5

4.

What can EnterprizeERP Consulting do for you? .................................................................................................5

a.

Assessment Service ...............................................................................................................................................6

i.

Assessment (4 Weeks) ...........................................................................................................................................6

ii.

Post Assessment: ...................................................................................................................................................6

5.

Case Study .............................................................................................................................................................6

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1. What is Material Ledger?

Material Ledger is used for Actual Costing and for maintaining Material Values in Multiple Currencies / Valuations. Actual Costing in Material
ledger complements Standard costing component by valuating inventory at Actual Costs. Using Material Ledger, Valuation of Materials can be
stored in two more additional currencies apart from local Company Code currency.

2. Where is Material Ledger Used?

a. Actual Costing
Actual Costing is used for the purpose of determining actual costs for externally procured materials and materials produced in-house.
Actual costing calculates an actual price (periodic unit price) for each material, into which all actual costs for the particular period flow. When
you use actual costing, all goods movements within a period are valuated preliminarily at the standard price. 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 for that particular period. The actual price that
is calculated is called the periodic unit price and can be used to revaluate inventory for the period to be closed. In addition, you can use this
actual price as the standard price for the next period.
Actual costing determines what portion of the variance is to be charged to the next-highest level using material consumption. With the actual
BOM, variances can be rolled up over multiple production levels all the way to the finished product. Additionally, you can choose to have
variances from cost centers and business processes also taken into account.

b. Multiple Currencies / Valuations

Material inventory values are normally carried by the SAP system in one currency. The material ledger component enables the R/3 or ECC
System to carry inventory values in two additional currencies/valuations.

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Therefore, all goods movements in the material ledger are carried in up to 3 currencies or valuations. Currency amounts are translated into
foreign currencies at historical exchange rates directly at the time of posting.
Businesses such as those in high-inflation countries can therefore carry their inventories in a more stable currency (such as US dollars). This
reveals inflationary effects on inventory values.

3. Benefits of the Use of Material Ledger

a. Periodic Unit Price
Material Ledger calculates the Periodic Unit Price, it is

Price based on actual transactions

Constant over the whole period
New Price calculated at Period end
No Sequence dependencies as in Moving Average price

b. Accounting
Material Ledger benefits Accounting in the following ways

Stock Accounts reflect Actual costs

Cost of Sales are recorded at Actual Costs
Cost Center Variances are included in the Material Costs
Price difference accounts are Cleared

c. Transparency of Value Chain

Transparency with Material Ledger helps in Price Analysis for Materials by

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Procurement Controlling
Drilldown to source documents
Visibility of Usage

d. Actual Prices with Cost Component Split

Actual Prices can be displayed in Cost Component Structure using Material Ledger

Reflects Actual Cost Structure

Can be compared to Planned Price

e. Actual Values in Profitability Analysis

Material Ledger transfers Actual Values to Profitability Analysis and thereby helps in

Contribution Margin Accounting

Cost of Sales split by Cost Components
Plan/Actual variance Analysis

4. What can EnterprizeERP Consulting do for you?

EnterprizeERP Consulting has a Service offering around Material Ledger for new and existing customers using SAP R/3 or ECC.
We would conduct an initial Assessment to review the requirements and come up with a detailed proposal, Approach document and Cost &
Effort estimates.

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a. Assessment Service
i. Assessment (4 Weeks)

Review the existing environment and configuration

Review the existing policies and procedures related to material valuation
Identify and recommend areas of improvisation and process improvements

ii. Post Assessment:

Initial Material Ledger Solution Design Document

Project Plan based on Solution & Approach
Training and Change Management need assessment
Technical architecture review
Work Plan
Detailed Proposal
Proposed Approach
Cost & Effort Estimate

5. Case Study
Material Ledger was implemented at a Leading food processing unit in USA. The purpose of the implementation was to facilitate the company to
do Actual Costing and to carry on Valuation at the Actual Prices. The requirement was also to store Material Valuation in multiple currencies as
well.
Material Ledger was activated to Valuate Raw materials, Semi-finished products and Finished Products. All Materials types mentioned above are
valuated at Standard price during the period and Actual prices calculated at Period end with adjustment entries made to Accounting.

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Raw materials are procured from outside, Price differences occur at the time of Goods Receipt due to difference in Purchase order Price to
Standard Price. At the time of Goods receipt, Variance is posted to Price Variance account. These Variances are charged to Semi-Finished and
Finished goods during the Actual pricing.
Semi-finished products and finished products are manufactured internally, Production costs are charged to these products from the Materials
assigned in their respective BOMs and Activity prices from their routings. During the period with Confirmation of Production orders, Raw
material costs and Activity prices are charged to Semi-finished and Finished products at Standard Price and Planned Price. Finished products are
confirmed to Stock and Cost of Sales at Standard Price.
At month end with Actual valuation, Price adjustments from lower level (Raw Materials) are rolled up to the higher level and adjusted to the
finished products. Actual Activity prices are calculated and Cost center Variances are distributed to the Finished Products.
With the Actual Costing at period end, Stock valuation of Finished Product and Cost of Goods sold is valuated at Actual Price there by making their
books of Account more accurate than the Companies that use other traditional methods of Valuations.
For more Information, please contact Ram.Rishi@EnterprizeERP.com.

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