You are on page 1of 9

Moving Average Price Vs Standard Price

SAP offers two methods of inventory valuation and product costing: standard cost and (weighted) moving average. The method to e used is identified on the material master level! thus different materials can use different methods within a plant. Although SAP does not restrict this choice! moving average is typically used only on purchased materials. The decision to use moving average for certain materials should reflect the approach used to analy"e contri ution margins! and variances in manufacturing and purchasing. #se of moving average on purchased materials may e appropriate where the item is an easily o tained commodity! with small fluctuations in cost. $n such situations! the impact on margins is minimi"ed! reducing the need for formal variance analysis. %rom a practical point of view! some of the &ey differences and considerations in how this would e reflected in the system are identified elow. '. SAP has officially recommended not using moving average for semi(finished and finished materials. The &ey point ehind this recommendation is that the moving average may ecome distored due to the timing of cost postings and settlements! and the num er of orders in progress for the same material. See )SS note *+',+- for more detail. -. There is no variance calculation for materials carried at moving average. Although this saves time during month(end! y definition this eliminates any analysis of price variances on raw materials and conse.uently! on uyer performance. /. $f (su ) assem lies are also carried at moving average! it is e0tremely difficult to identify the source of fluctuating valuation since many materials in the 1)M may contri ute to it. Again! there is no variance calculation for analy"ing manufacturing operations. Additionally! cost fluctuations will seriously impact margin analysis for items sold or transferred. 2. $n situations of rapid inventory turnover! use of moving average on (su )assem lies may result in variance postings due to inade.uate stoc& coverage to a sor settlement ad3ustments. Attempting to settle more often 4 automatically may not e feasi le if not all costs have een posted. 5. Moving average can e set to "ero and will not generate any warnings during transactions (i.e. no %$ postings). Standard cost also allows a "ero standard cost (as of /.6d)! ut generates at least a warning. ,. 7ost fluctuations at lower levels in the 1)M will have a delayed impact on parent items! either in terms of variance postings and4or ad3ustment of parent moving averages. %or e0ample! a lower level material which is ad3usted through its own settlement! may e used at various points in the life cycle of higher(level orders8 any cost under4overruns of the component would e reflected later on the higher level orders.

9. The moving average for a material may e changed directly via t4c M:-'! unli&e the more formali"ed cost roll(up procedure used in standard costing. Access to this transaction should e restricted. +. 7hanging a material from standard cost to moving average will overwrite the e0isting moving average with the then(current standard8 a report e0tract should e generated efore any update for analysis and audit. ;. Any changes to config on the price control for a material type impacts newly created materials only < they are default settings and do not affect already created materials. '6. $n environments where some materials are carried at moving average and others at standard! there is a su tle error possi le. =ven for materials eing carried at moving average! the cost roll(up will update the standard price field with the calculated value. Since the material itself will e transacted at moving average! this would appear to e a statistical 4 memo entry only. >owever! the ?as(delivered@ settings for valuation variant 66' (used for oth cost roll(ups and goods receipt)! are: a. . c. Planned price Standard cost Moving average cost

This means that in a cost roll(up! if the lower level item is eing carried at moving average! has a costing view! and has een included in a cost roll(up! it will also have a standard price recorded. According to the standard valuation variant! this would mean the higher level material would see and use the standard cost efore the moving average. This could result in a uilt(in variance.

Main diferences etween Moving Average and Standard Price is: '. Standard price is same for one period (month) and automatic posting of good receipt does not influence to it (you can change price AmanualyA ( M:-' transaction! or y calculation in 7) for finished and semifinished products). Moving Average price change every good receipt! if price on purchase order is diferent from price in material Master -. Bood receipt from vendor referencing on purchase order. $f you have standard price! on stoc& account in %$ SAP posts per standard price in material master and diferences (values) etween y price on P) and standard price in material master always e posted on other costs or other revenues in %$. $f you have moving average price in material master! on stoc& account in %$ SAP posts per price in purchase order and changes price in material master! and there diferences not posts. /. Posting diferences etween price on invoice and on purchase order in $nvoice verification. %or standard price diferences SAP always posts in %$ on other costs or other revenues account. %or moving average price! if .uantity on stoc& is at least same or more then .uantity on invoice! diferences SAP posts on stoc& account in %$. %or moving average price! SAP posts in %$ on other costs or other revenues account olny if .uantity on stoc& is less then .uantity on invoice. >aving read your original .uestion on the difference etween the two prices and the su se.uent responses $ feel $ can offer you some advice on which value to use for :aw Materials vAs %inished Products. %irstly the choice should e ased on the accounting standard that is appropriate in your country. )ur organisation values stoc& using the two methods where all finished products are valued ased on standard while ingredients purchased e0ternally of the organisation are valued at moving average. >aving said that there are always e0ceptions as the e0ternal products are used in the valuation of finished goods! so even though those goods are valued at standard they do have components which are ased on

moving average. There should not e any need to do 3ournaling of differences in SAP as the values are carried in the material ledger at moving average or standard and accounting entries will alance out as the material ledger values are used in the oo&s of account. There is no reconciliation etween moving average and standard in the oo&s of account. Provided you value your stoc&s consistently then this should also satisfy the ta0ation authorities.

Change from Moving average price to Standard price in the material master can be done only as long as there is no stock in our Plant(valuation area). Once the stock is generated and valuated as per moving average price then change to standard price is not possible. I am able to change from M P (!) to Standard Price (S)for a ra" material even though there is stock in accounting # vie" and material documents in M$%# for movement type #&# against purchase order' ()# etc. I had to change the M P to e*ual Standard price through M+(# before I could change. ,he material had a released standard cost.

-enerally all ra" materials (+O.)' spare parts (/+S )' traded goods (. 0 ) etc. are assigned as moving average price (M P) because of the accounting practice of accurately valuating the inventory of such materials. ,hese materials are sub1ect to the purchase price fluctuations on a regular basis. Company generally use moving average on purchased materials "ith small cost fluctuations. It is most appropriate "hen the item is easily obtainable. ,he impact on margins are minimi2ed "hich reduces the need for variance analysis. 3urthermore' the administrative effort is lo" as there are no cost estimates to maintain. ,he cost reflects variances' "hich are closer to actual costs. ,he semi4finished goods (. 5$) and finished products (3/+,) are valuated "ith standard price because of the product costing angle. If these "ere to be M P controlled' then finished6semi4finished product valuation "ould fluctuate due to data entry errors during backflushing of material and labour' production inefficiencies (higher cost) or efficiencies (lo"er cost). ,his is not a standard accounting and costing practice. +efer to OSS note 7#)7( 8 Pr.Contr.! for semi4finished and finished products. S P recommends that standard price to be used for 3/+, and . 5$. If actual price is re*uired for valuation' make used of the functions of material ledger "here a periodic actual price is created "hich is more realistic. e.g. ho" S P calcualte the moving average price -oods +eceipt for Purchase Order $alance on hand *uantity 9 -oods +eceipts *uantity $alance on hand value 9 -oods +eceipts value :e" Moving verage Price ; ,otal !alue 6 ,otal <uantity Invoice +eceipt for Purchase Order Invoice price more than Purchase Order price = additional value add to $alance on hand value then divided by $alance on hand *uantity Invoice price less than Purchase Order price = difference is deducted from the $alance on hand value (up to &). ,he rest of the amount "ill becomes price variance. ,his "ill result in $alance on hand value is 2ero "hile there are $alance on hand *uantity. If the $alance on hand value is enough to deduct' then the remaining value "ill be divided by $alance on hand *uantity. 0hen your -oods Issue price is constantly greater than your -oods +eceipt price' it "ill result into 2ero value moving average price.

OSS note #7%>)# 8 Moving verage Price Calculation. 77?(& 8 Strong variances "hen creating moving average price. :ever allo" negative stocks for materials carried at the moving average. Product Costing Master @ata in S PMarch #?th' (&&> by admin 5eave a reply A Product Costing Master @ata in S P3ollo"ing are the important related master data to Product Cost Controlling Integration.a. Material Master vie" related to Product Costingb. $ill of Materialc. 0ork Center d. +outinge. Production Order f. Product cost collector Material Master !ie" related to Product Costing3ollo"ing vie"s of material master are important for Product Costing.#. ccounting !ie"s(. Costing !ie"s#. ccounting !ie"s B ccounting !ie" #Ba. !aluation Class field determines "hich -5 account "ill be debited6 credited.b. Price Control B If material master is created for ra" material category' price control should be selected as !"hich determines valuation of the ra" material "ill be done on Moving verage Price. If material master iscreated for S3- or 3-' price control should be selected as S "hich determines valuation of the S3- or 3- "illbe done on Standard Price. ccounting !ie" ( B

sap material moving average price vs standard price


The standard price4moving average price in material master is used to valuation4determine the value of your inventory. The price on the purchase order is the ase price that you actually pay for the inventory. The purchase order price should e pulled from the info record. These can sometimes e out of sync. $f the material is valued at a standard price! the difference etween the purchase order price and the standard price will go to a price difference account. $f the material is valued at a moving average price! the difference etween the purchase order price and the moving average price will C)T go to a price difference account. The moving average price will simply e ad3usted. De use a simple rule of any material purchased e0ternally is valuated at a moving average price. Anything produced internally and placed into inventory is valuated at a standard price across all plants. Benerally all raw materials (:)>)! spare parts (=:SA)! traded goods (>ADA) etc. are assigned as moving average price (MAP) ecause of the accounting practice of accurately valuating the inventory of such materials. These materials are su 3ect to the purchase price fluctuations on a regular asis. 7ompany generally use moving average on purchased materials with small cost fluctuations. $t is most appropriate when the item is easily o taina le. The impact on margins are minimi"ed which reduces the need for variance analysis. %urthermore! the administrative effort is low as there are no cost estimates to maintain. The cost reflects variances! which are closer to actual costs. The semi(finished goods (>AE1) and finished products (%=:T) are valuated with standard price ecause of the product costing angle. $f these were to e MAP controlled! then finished4semi(finished product valuation would fluctuate due to data entry errors during ac&flushing of material and la our! production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice. :efer to )SS note 81682 - Pr.Contr.V for semi-finished and finished products. SAP recommends that standard price to e used for %=:T and >AE1. $f actual price is re.uired for valuation! ma&e used of the functions of material ledger where a periodic actual price is created which is more realistic. e.g. how SAP calcualte the moving average price Boods :eceipt for Purchase )rder 1alance on hand .uantity F Boods :eceipts .uantity 1alance on hand value F Boods :eceipts value Cew Moving Average Price G Total Value 4 Total Huantity $nvoice :eceipt for Purchase )rder $nvoice price more than Purchase )rder price

additional value add to 1alance on hand value then divided y 1alance on hand .uantity

$nvoice price less than Purchase )rder price

difference is deducted from the 1alance on hand value (up to 6). The rest of the amount will ecomes price variance. This will result in 1alance on hand value is "ero while there are 1alance on hand .uantity. $f the 1alance on hand value is enough to deduct! then the remaining value will e divided y 1alance on hand .uantity. oods #eceipt price! it will result into

Dhen your oods !ssue price is constantl" greater than "our "ero value moving average price.

)SS note '+5;,' ( Moving Average Price 7alculation. ++/-6 ( Strong variances when creating moving average price. Cever allow negative stoc&s for materials carried at the moving average.

Valuation with $oving Average price%

$n the following e0ample! inventory is valuated with the moving average price. The system analyses how stoc& coverage and stoc& shortage affect prices. %or more information on the standard price and moving average price! see Price 7ontrol with and without the Material Eedger Pro&lems with Stoc' Coverage ()ample 1% Stoc' Coverage at oods #eceipt '. $n the current period! there are a num er of goods receipts for a material that is valuated with the moving average price: Boods receipt ': '66 pieces at I'4pc. Boods receipt -: '66 pieces at I'4pc. Boods receipt /: '66 pieces at I'4pc. Valuation data for the material: Inventory quantity: 300 pieces Inventory value: 300 Moving average price: $1 -. A goods issue occurs for '+6 pieces of this material. Valuation data for the material: Inventory quantity: 120 pieces Inventory value: 120 Moving average price: $1 /. $n the invoice receipts for the goods receipts a ove! the invoice price varies from the purchase order price in all three cases: $nvoice receipt ': '66 pieces at I'.-64pc. $nvoice receipt -: '66 pieces at I'.-64pc. $nvoice receipt /: '66 pieces at I'.-64pc. 1ecause in all three cases there was ade.uate stoc& coverage at the time of the invoice receipt (inventory .uantity is at least as large as the invoice .uantity)! the price variances from all three invoices are completely de ited to inventory. $n total! the remaining inventory .uantity is de ited with a variance of I,6. The individual orders do not chec& whether the remaining inventory .uantity is also de ited y other orders Valuation data for the material: Inventory quantity: 120 pieces Inventory value: $180 Moving average price: $1.50 The result is an e0cessively high valuation price for the material stoc& and su se.uent material consumption! as all price variances from the various goods receipts flowed into the price. ()ample 2% Stoc' Coverage at *rder Settlement Juring the settlement of variances on manufacturing orders! the system chec&s whether a corresponding stoc& coverage e0ists for the respective material. $f multiple manufacturing orders were completed during a period and the material stoc& at the end of the period is smaller than the sum of the receipts from production orders! variances from all production orders are allocated to the material stoc&! assuming ade.uate stoc& coverage. The individual orders do not chec& whether the period ending inventory was already de ited with variances from another orderK '. )ne piece of material %=:T is produced per day for '6 days in one period and delivered to stoc& at a price of I'66.

Valuation data for the material: Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD -. There is only ' piece left in material stoc& at period end. A variance of I'6 is calculated for each production order. =ach individual production order chec&s stoc& coverage and determines that the variances can e posted completely to stoc&.

Valuation data for the material at period end: Inventory quantity: 1 piece Inventory value: 200 USD Moving average price: 200 USD

The ending inventory of ' piece is de ited y I'66 and the moving average price for material %=:T ecomes I-66. Thus! the remaining material inventory is charged with variances that it didnAt even cause! resulting in an unrealistic price. Su se.uent consumption is also valuated using this inflated price. The material stoc& value no longer reflects the actual cost of goods manufactured. The system reacts differently if it discovers a stoc& shortage. Pro&lems with Stoc' Shortage ()ample +% Stoc' Shortage at !nvoice #eceipt $f the invoiced amount of an e0ternally procured material is less than the amount with which the goods receipt is valuated! the invoice receipt should correct the material price y reducing the value of the material stoc&. $f! however! there is a stoc& shortage at the time of the invoice receipt! the stoc& value is only reduced proportionally8 the remaining amount is posted to the price difference account in inancial !ccounting. ()ample ,% Stoc' Shortage at *rder Settlement oods #eceipt for the *rder% '. )ne piece of material %=:T is produced per day for '6 days in one period and delivered to stoc& at a price of I'66. Valuation data for the material: Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD -. There is ' piece left in material stoc& at period end. A variance of I'6 is calculated for each production order. The variances of a manufacturing order! '66 #SJ! should e settled with a lot si"e of '6 pieces. There is only ' piece of the material left in stoc&. Thus! the material stoc& is only partially de ited (with '6 #SJ). Valuation data for the material: Inventory quantity: 1 piece Inventory value: 20 USD Moving average price: 20DM "rice #i$$erence account: %0 USD -o oods #eceipt for the *rder% $f variances were calculated for a manufacturing order in one period even though there were no goods receipts for that order in that period (such as with follow(up costs) the entirety of these variances are posted to the price difference account. >ere! it cannot e guaranteed the material stoc& value reflects the actual position

Moving average price versus standard price for the valuation of raw materials
SpeakerB

madou 5C

Print /4mail

/very company at some stage considers "hether to set inventory valuation to standard or moving average price. In this session youDll learn the advantages and disadvantages to both as "ell as the follo"ing kno"ledge pointsB

,he relationship of standard price and purchase price variance (PP!) analysis Standard price as a Eey Performance Indicator (EPI) for Purchasing dvantages and disadvantages of standard price versus moving average price S PF recommendations and common business practice

,he relationship bet"een standard and moving average price and the material ledger

,here are no fiGed rules "hen to use standard or moving average price. ,here are' ho"ever generally accepted best business practices "hich youDll take a"ay from this session.