Customizing -> SAP Reference IMG -> Controlling -> Product Cost Controlling -> Product Cost Planning -> Material Cost Estimate with Quantity Structure -> Costing Variant: Components -> Define Costing Types
One of the most frequent questions I get, when it comes about Transfer Pricing, are around the correct currency and ledger set up. The idea of the blog is to bring some light for those who are questioning themselves if the currencies and the number of ledgers they want to set for Transfer Pricing, are correct.
What is in fact Transfer Pricing main benefit?
It brings Multiple Valuations of the Same Material Flow in the Supply Chain. Currently 3 valuation views are available:
- Legal valuation focuses on inter-company pricing agreements and legal tax requirements. Allows you to represent profits optimally in the financial statements of the company code for tax purposes and according to GAAP Standards.
- Group valuation focuses on eliminating intercompany profits (mark-up) and acting as „one company". Allows strategic decision making by viewing data as if the group acts as a single company code by eliminating internal profits throughout the financial transaction flow.
- Profit Center valuation focuses on management prices agreed e.g., between divisions (optional) or could be also market prices. Allows you to view the profit of individual areas of responsibility as if they were selling entities not part of the larger group.
You can do the Group and/or the Profit Center Views – i.e. you can do either one or both.
An important part in the Multiple Valuations of the inventory is played by the currency/ledgers set up. Before we get into that, let’s see what else it is needed to achieve the multiple valuation of the inventory in the supply chain.
Prerequisites for Transfer Pricing:
Logistic
- Introducing a valuated stock in transit (SIT) that either belongs to the sending or the receiving plant. In the images bellow are presented process variants including the transactions and movement types which need to be used for cross and intra-company stock in transit.
More details about movement types and scenarios which can be used for valuated stock in transit can be found on the following link : Movement Types for Valuated Stock in Transit - SAP Help Portal.
- New order types and movement types and configuration to support the process
- Ability to use this new concept either for cross-company processes or intra-company code processes
- Setting up inter-company billing with EDI, see oss notes:
Note 31126 - Intercompany billing - posting to vendor account using EDI
Note 659590 - EDI: Stock transfer and cross-company sales
Accounting
- Activated on the Controlling Area level
- Material Ledger and Actual Costing must be activated
- Multiple currency set up - a maximum of three currency fields are available for the operational inventory valuation of the materials. Before you implement the profit center valuation or group valuation, you must therefore first check which currencies are required for the legal requirements in the inventory valuation.
- Inclusion of cross-company profits (or markup) into the cost components
- Group and profit center actual costing parallel to the legal view
Month end closing
- CKMLCP needs to be executed in one run for all valuation areas where the multiple valuation it is desired. Actual Costs can only be transferred between plants that are settled in the same costing run.
Cross-Company receipts from plants outside the run will keep the standard price and standard cost component split info from the sending plant.
Workaround, when a common run for the whole group cannot be managed:
- Close organizations separately in CKMLCP
- Create an (statistical) alternative valuation run AVR (CKMLCPAVR) for the whole group to calculate fully connected group results with actual costs
- Use AVR results for reporting
How to set up transfer pricing – Implementation hints
Maintain Currency and Valuation Profile
In the currency and valuation profiles you determine which valuation approaches are managed in which currency in accounting. Currency types used for parallel valuation of inventory:
For group and profit center valuation, you would manage the following valuation approaches:
Company code currency (10) in legal valuation (0) - mandatoryGroup currency (30) or Company code currency (10) in Group Valuation (1)
Company code currency (10) or Group currency (30) in Profit Center Valuation (2)
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Multiple Valuation Approaches/Transfer Prices -> Basic Settings -> Maintain Currency and Valuation Profile (8KEM)
1.Legal valuation - company code currency (10) -> 10
Group valuation - group currency (30) -> 31
Profit Center Valuation -company code currency (10) ->12
2. Legal valuation - company code currency (10) -> 10Group valuation - group currency (30) -> 31
Profit Center Valuation -group currency (30) ->32
3. Legal valuation - company code currency (10) -> 10
Group valuation - group currency (10) -> 11
Profit Center Valuation -group currency (10) ->12
4. Legal valuation - company code currency (10) -> 10
Group valuation - group currency (10) -> 11
Profit Center Valuation -group currency (30) ->32
The last one doesn’t know if make sense for anyone, having Group Valuation in local currency and Profit Center valuation in group currency, but it can be set up.
Basic Rules
You have to take the following rules into account when you maintain the currency and valuation profiles because they are checked when you activate the currency and valuation profile in the controlling area:
- Managing the company code currency (currency type 10) in legal valuation is mandatory.
- You can decide whether the Profit Center Valuation approach and the Group Valuation approach are managed in the company code currency (currency type 10) or in the group currency (currency type 30).
- All valuation approaches you manage in accounting must also be managed correspondingly in the material ledger.
- You can only manage a profit center valuation if you are using Profit Center Accounting. Transfer prices means 12 or 32 . Is possible to set up Currency and Valuation profile only with group valuation 11 or 31.
- The currency and valuation profiles can only be changed as long as they are not yet assigned and not yet active in the controlling area.
- If you are doing a conversion and ML is already active but only in legal valuation, the cutover to parallel valuation is not yet supported by SAP standard in S/4 HANA. Also, subsequent implementation of multiple valuation approaches in a productive SAP S/4HANA system is not yet supported, see notes:
2334583 - Introduction of new currencies / currency types in SAP S/4HANA - SAP ONE Support Launchpad
2555648 - Currency setting changes with active Material ledger in SFIN & S/4HANA - SAP ONE Support L...
Therefore, if multiple valuation approaches are required in your group, the current recommendation is to introduce the multiple valuations in the ERP system and then migrate to SAP S/4HANA. SAP Note 2882025 - Multiple valuation approaches/transfer prices in SAP S/4HANA, on-premise edition.
Define Settings for Ledgers and Currency Types
Multiple valuation approaches are managed in same way as parallel currencies in FI, in transaction FINSC_LEDGER. You can see the setting options for the multiple valuation approaches in FINSC_LEDGER only if a Currency and Valuation profile is assigned to at least one controlling area.
In SAP S/4HANA two options are available to store multiple valuation:
Mixed ledger or Multi-valuation Ledger - update the multiple valuation approaches in addition to the legal valuation approaches in the leading ledger or a non-leading ledger
Advantages:
- Currency types of all Valuations can be assigned to the leading ledger or a non-leading ledger, no additional ledgers will be needed
- No separate month end closing in ML
- Memory footprint optimized as we only one ledger will get updated with all valuations
- Default for Migration
The currency types (for example, 11/31 or 12/32) are maintained per ledger and company code.
- Up to and including SAP S/4HANA Release 1709, the valuation approach that is managed in the material ledger must be in one of the first four currency fields. Therefore, besides the two currencies set by the system (local currency and company currency), only the first two freely defined currencies remain for a profit center valuation or group valuation.
The example above it is for Legal and Group Valuation only, with the following setup:
| Currency and Valuation Profile | Material ledger currencies: |
| 10 Company Code Currency – Legal Valuation | 10 - Company Code Currency |
| 30 Group currency - Group Valuation | 30 - Group currency |
| 31 - Group currency, Group Valuation (minus the intercompany profit) |
- You can use all freely definable currencies for operational inventory valuation only as of SAP S/4HANA Release 1809.
- It is mandatory to maintain both currency types for each valuation approach in transaction FINSC_LEDGER : 11 and 31 or 12 and 32.
Even if only one currency type is maintained for a valuation approach in the currency and valuation profile, both currency types of a valuation are necessary for updating data in Controlling. With the introduction of the universal journal, the data model has been simplified and harmonized. The universal journal uses the ledger approach for general ledger accounting and for all subledgers. Therefore, in ACDOCA, the currency types in the company code currency and the group must exist for each valuation view.
Example:
The example above it is for all valuations, with the following setup:
| Currency and Valuation Profile | Material ledger currencies: |
| 10 Company Code Currency – Legal Valuation | 10 - Company Code Currency |
| 30 Group currency - Group Valuation | 31 - Group currency, Group Valuation (minus the intercompany profit) |
| 30 Group currency - Profit Center Valuation | 32 - Group currency, PC Valuation |
Important:
- The freely defined currencies that are maintained per ledger and company code are always translated from the delivered valuation approaches.
Example: If the profit center valuation is maintained in group currency (32) in the Currency and Valuation profile, currency type 12 is calculated from currency type 32. See SAP Note 2581071 - Currency conversion of a freely defined currency type which is not defined as a local curr... for more details on how a freely defined currency type of FINSC_LD_CMP is calculated if is not defined as local currency in FI.
- SAP recommends that you maintain the currency views and valuation views from the Currency and Valuation profile as the 2nd or 3rd FI local currency in transaction FINSC_LEDGER. The background is that currently only these FI currencies are integrated with all other applications. You also need the integrated FI currency, for example, if you want to execute manual postings in FI in the multiple valuations.
Parallel single-valuation Ledgers – create a separate valuation ledger for the multiple valuation approach
Advantages:
- Valuation is assigned to Ledger
- Option for new installations
- Easier authorization concept
The Currency and Valuation Profile and the Material ledger currencies set up is the same as for the example above.
Important: The separation of the multiple valuation views from the legal valuation in a single valuation ledger is currently not completely possible due to a restriction in Asset Accounting. For more information, see SAP Notes:
2554992 - Multiple valuation approaches/transfer prices: Permitted representative ledgers in Asset A...
2882025 - Multiple valuation approaches/transfer prices in SAP S/4HANA, on-premise edition
Material ledger and actual costing
Are both mandatory for transfer pricing.
The currency types in the material ledger are defined as before in customizing, in material ledger types.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage Multiple Valuation Approaches/Transfer Prices -> Basic Settings -> Check Material Ledger Settings. Under Assign Currency Types and Define Material Ledger Types (OMX2)
Profit center valuation and/or group valuation should be assigned to a material ledger type only in the currency maintained in the Currency and Valuation Profile. Currency types 11 and 31 or 12 and 32 cannot be processed completely in parallel along the value chain. For more details see oss Notes 2752721 - Material Ledger supports up to 3 Currency and Valuation Types - SAP ONE Support Launchpad
2760935 - ML Type definition with respect to the group and profit center valuation
More details on Material ledger currency set up can be found also on the link: Material Ledger Currencies - ERP Financials - Support Wiki (sap.com)
Controlling settings
In SAP S/4HANA, FI and CO are integrated under the same table - ACDOCA. However, some CO transactions still expect the data in the old CO version format. For reasons of compatibility, it is therefore necessary in SAP S/4HANA to maintain both versions for multiple valuations and to assign the ledgers to these CO versions.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage Multiple Valuation Approaches/Transfer Prices -> Basic Settings -> Define Ledger for CO Version
Product Cost Planning
The multiple valuation approaches in Material Ledger can either be maintained manually or determined using Product Cost Planning. Product Cost Planning offers the option of determining standard costs for each valuation approach (legal, group, profit center) and updating these in the Material Ledger. To determine the costs in the corresponding valuation views, you can create corresponding costing variants in customizing. The costing variant is assigned a costing type that determines which valuation approach costing is calculated. The costing type similarly determines whether the standard price of the corresponding valuation approach can be updated by the costing variant.
The costing version controls which transfer price variant from Profit Center Accounting is to be used as part of costing. Customizing -> SAP Reference IMG -> Controlling -> Product Cost Controlling -> Product Cost Planning -> Selected Functions in Material Costing -> Define Costing Versions.
The group costing saves the valuation differences from the legal and profit center valuations in additional cost components for the cost of goods manufactured. You must create these cost components for the cost of goods manufactured in addition to the usual cost components (OKTZ). You must also identify them as such on the detail screen for cost components for the cost of goods manufactured using the Delta Company Code or Delta Profit Center field.
Setting up the cost component split
Actual costing reuses the cost component definition in product cost planning. The menu path in IMG is Controlling- Product Cost Controlling – Basic settings – Define Cost Component Structure (OKTZ).
The cost component for the intra-company profit is define by the checkmark Company Code in the group Delta Profit for Group Costing
The change of the cost component structure is critical for implementations where actual cost component split was already active before. Information and possible scenarios are given in note Note 434873 - Actl cost component split - cost component structure change.Activate Cost Component Split in Controlling Area Currency
In this step, you specify that the cost components of the material costing, sales order costing, or order BOM costing are to be updated both in the currency of the company code, and in the currency of the controlling area. This processing requires that the All Currencies indicator is set as the control indicator for the controlling area. Customizing -> SAP Reference IMG -> Controlling -> Product Cost Controlling -> Product Cost Planning -> Selected Functions in Material Costing -> Activate Cost Component Split in Controlling Area Currency (OKYW).
More details on Actual Cost Component split can be found :Actual Cost Component Split CCS - ERP Financials - Support Wiki (sap.com)
Activate transfer prices
The activation of the Currency and Valuation Profile for a controlling area is the final step in customizing for multiple valuation approaches/transfer prices. Activate the Currency and Valuation Profile only after you have made all the settings described above.
Customizing -> SAP Reference IMG -> Controlling -> General Controlling -> Manage Multiple Valuation Approaches/Transfer Prices -> Activation -> Multiple Valuation Approaches: Check/Execute Activation (8KEP).
How Is the Value Flow Represented in the Supply Chain?
- Standard Costs created using three separate costing variants that work from a common BOM (in case all three valuation will be used Legal, Group, profit Center valuation). The BOM provides a link between plants that trade with one another for planning purposes.
- Cost components recognize delta by company code and profit center at intersections
- The costing variants fill three valuation views in the material ledger.
- The Material Ledger: captures the link between sender plant and receiver plant as the goods movement for the stock transfer order is posted
Where:
Company Code Currency – Legal Valuation
Group currency, group valuation – Group Valuation minus the intercompany profit/mark-up.
Group Currency, profit center valuation – the profit of individual areas of responsibility in group currency.
Actual Costing - Material Ledger CO-PC-ACT - ERP Financials - Support Wiki (sap.com)
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