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Material valuation with Material Ledger

Material Ledger   combines the advantages of both MVA and Std price

One of the Advantages of the Material Ledger is , it  combines the advantages of both types of price controls

  1. S ( Standard price)
  2. V (Moving Average price)

In this blogpost you will learn how Material Ledger   combines the advantages of both MVA and Std price

Let us first see the advantages and disadvantages of  Price control V and S

S ( Standard price)  V  (Moving Average price)
Adv : Std price can be used as a bench mark price to analyse the variances Disadv : As the MVA changes with every goods receipt   and invoice receipt . it can not be used as a bench mark price . So variance analysis is not possible ,
Disadv : Std price don’t reflect the actual price Adv : MVA reflects the actual price as it updates with every goods receipt and invoice receipt .

 

Let us  see what are the price controls recommended for different types of materials with ML active and with out ML active . Let us have a look into the table

 

Price Control and Price determination

ML active ML not active
Moving Average price (V) Standard price (S)

Standard price (S)

Recommended for SFG FG

Price determination

2 Transaction-based

(MVA is used for valuation)

Price determination

3 Single/Multilevel

(PUP is used for Valuation in the closed period)

Recommended for FG SFG and also RM

Price determination

2 Transaction-based

(std price is used for Valuation. MVA is used for Info purpose)

Moving Average(V)

Recommended for RM

 

When Material ledger is not active MVA is recommended for RM and Std price is recommended for FG and SFGs   (as shown in the 4th column)

When Material ledger is  active Std price and Price determination 3 (ie Single/Multilevel Price determination  ) is recommended for FGs , SFGs and RMs (as shown in the 2nd  column)

It is interesting to see that when Material ledger is active  it is recommended to set Std price  even for  RMs.

More interestingly system do not use Std Price for all periods even though we set std price in the material master.

In fact system uses Std price in the current period  and MVA price in the closed periods. Let us have a look at the images .

Post Closing entries

Let us now no see how  price control changes from Std to MVA at month end  and back to Std price at the beginning of the next month . Have a look the following images and notice the posting dates . These two are the documents generated during  ‘Post Closing ‘ flow step in CKMLCP .

From the posting dates and line items of the documents one  can understand that 2nd document is the reversal of the first document .

Change of Price control

Finally we can conclude that during the single level and multi level price determination actual cost (PUP) is calculated .  During  ‘Post Closing’ the system changes the price control to  ‘V’  and uses PUP as the new MVA price. Price differences are posted to inventory accounts(posting date will be the last day of the period ).

And creates one more document which is a reversal of the inventory posting (Posting date will be 1st day of the next period) and sets the price control back to  ‘S’  .  This is how Material ledger uses both Std price and MVA price but for different periods and combine the advantages .

Further advantage of  Material ledger  is that  uniform average prices(of the period) are used to valuate all the consumptions in a period  . This is possible with the functionality ‘ Revaluation of consumption ‘ .

Thanks for reading the blog

 

5 Comments
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  • Nice Blog Sir….

    I have not understand this last point regarding “Uniform average prices(of the period) are used to valuate all the consumption in a period. This is possible with the functionality ‘ Revaluation of consumption’ “. Would you please elaborate this in more details?

    • In case of  FG and SFG , PUP is nothing but the average cost of all production orders in a month . And in case of RM ,  PUP is nothing but the average price  of all purchase orders (each purchase order has GR and Invoice) in a month . That is why I used the word  ‘average price’ .  If  ML is not active the MVA  price that is used to valuate RM is not uniform . ie Each RM consumption can be valuated with a different  MVA price which exist at the time of consumption .  If  ML is  active , PUP (Average price) is used to valuate all  the consumptions of a material  in a month (Initial valuation with std price + Revaluation with variance) . That is why I used the word ‘Uniform’  .  Hope this clears

  • Hi Srinivasa,

    Thank you for your blog post, it has useful information.

    I have a Brazil country complex requirement, where all materials are valuated using MAP (Moving average price – V price Control) with Split valuation. Law needs ML activated for multilevel (3) costing. I’m analyzing scenario to find how the variance will be calculated and absorbed in closing stock (S price control is not there) from PUP. I’d request you if you could throw some light on this issue. Thanks.

    Regards,

    Amit