Moving Average Price vs Standard Price

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 be 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 analyze contribution margins, and variances in manufacturing and purchasing. Use of moving average on purchased materials may be appropriate where the item is an easily obtained commodity, with small fluctuations in cost. In such situations, the impact on margins is minimized, reducing the need for formal variance analysis. From a practical point of view, some of the key differences and considerations in how this would be reflected in the system are identified below. 1. SAP has officially recommended not using moving average for semi-finished and finished materials. The key point behind this recommendation is that the moving average may become distored due to the timing of cost postings and settlements, and the number of orders in progress for the same material. See OSS note #81682 for more detail. 2. There is no variance calculation for materials carried at moving average. Although this saves time during month-end, by definition this eliminates any analysis of price variances on raw materials and consequently, on buyer performance. 3. If (sub) assemblies are also carried at moving average, it is extremely difficult to identify the source of fluctuating valuation since many materials in the BOM may contribute to it. Again, there is no variance calculation for analyzing manufacturing operations. Additionally, cost fluctuations will seriously impact margin analysis for items sold or transferred. 4. In situations of rapid inventory turnover, use of moving average on (sub)assemblies may result in variance postings due to inadequate stock coverage to absorb settlement adjustments. Attempting to settle more often / automatically may not be feasible if not all costs have been posted. 5. Moving average can be set to zero and will not generate any warnings during transactions (i.e. no FI postings). Standard cost also allows a zero standard cost (as of 3.0d), but generates at least a warning. 6. Cost fluctuations at lower levels in the BOM will have a delayed impact on parent items, either in terms of variance postings and/or adjustment of parent moving averages. For example, a lower level material which is adjusted through its own settlement, may be used at various points in the life cycle of higher-level orders; any cost under/overruns of the component would be reflected later on the higher level orders.

7. The moving average for a material may be changed directly via t/c MR21, unlike the more formalized cost roll-up procedure used in standard costing. Access to this transaction should be restricted. 8. Changing a material from standard cost to moving average will overwrite the existing moving average with the then-current standard; a report extract should be generated before any update for analysis and audit. 9. 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. 10. In environments where some materials are carried at moving average and others at standard, there is a subtle error possible. Even for materials being carried at moving average, the cost roll-up will update the standard price field with the calculated value. Since the material itself will be transacted at moving average, this would appear to be a statistical / memo entry only. However, the ‘as-delivered’ settings for valuation variant 001 (used for both cost roll-ups and goods receipt), are: a. b. c.

Planned price Standard cost Moving average cost

This means that in a cost roll-up, if the lower level item is being carried at moving average, has a costing view, and has been 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 before the moving average. This could result in a built-in variance.

Main diferences between Moving Average and Standard Price is: 1. Standard price is same for one period (month) and automatic posting of good receipt does not influence to it (you can change price 'manualy' - MR21 transaction, or by calculation in CO for finished and semifinished products). Moving Average price change every good receipt, if price on purchase order is diferent from price in material Master 2. Good receipt from vendor referencing on purchase order. If you have standard price, on stock account in FI SAP posts per standard price in material master and diferences (values) between by price on PO and standard price in material master always be posted on other costs or other revenues in FI. If you have moving average price in material master, on stock account in FI SAP posts per price in purchase order and changes price in material master, and there diferences not posts. 3. Posting diferences between price on invoice and on purchase order in Invoice verification. For standard price diferences SAP always posts in FI on other costs or other revenues account. For moving average price, if quantity on stock is at least same or more then quantity on invoice, diferences SAP posts on stock account in FI. For moving average price, SAP posts in FI on other costs or other revenues account olny if quantity on stock is less then quantity on invoice. Having read your original question on the difference between the two prices and the subsequent responses I feel I can offer you some advice on which value to use for Raw Materials v's Finished Products. Firstly the choice should be based on the accounting standard that is appropriate in your country. Our organisation values stock using the two methods where all finished products are valued based on standard while ingredients purchased externally of the organisation are valued at moving average. Having said that there are always exceptions as the external products are used in the valuation of finished goods, so even though those goods are valued at standard they do have components which are based on

moving average. There should not be any need to do journaling of differences in SAP as the values are carried in the material ledger at moving average or standard and accounting entries will balance out as the material ledger values are used in the books of account. There is no reconciliation between moving average and standard in the books of account. Provided you value your stocks consistently then this should also satisfy the taxation 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 MAP (V) to Standard Price (S)for a raw material even though there is stock in accounting 1 view and material documents in MB51 for movement type 101 against purchase order, 261 etc. I had to change the MAP to equal Standard price through MR21 before I could change. The material had a released standard cost.

Generally all raw materials (ROH), spare parts (ERSA), traded goods (HAWA) etc. are assigned as moving average price (MAP) because of the accounting practice of accurately valuating the inventory of such materials. These materials are subject to the purchase price fluctuations on a regular basis. Company generally use moving average on purchased materials with small cost fluctuations. It is most appropriate when the item is easily obtainable. The impact on margins are minimized which reduces the need for variance analysis. Furthermore, 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 (HALB) and finished products (FERT) are valuated with standard price because of the product costing angle. If these were to be MAP controlled, then finished/semi-finished product valuation would fluctuate due to data entry errors during backflushing of material and labour, production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice. Refer to OSS note 81682 – Pr.Contr.V for semi-finished and finished products. SAP recommends that standard price to be used for FERT and HALB. If actual price is required for valuation, make 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 Goods Receipt for Purchase Order Balance on hand quantity + Goods Receipts quantity Balance on hand value + Goods Receipts value New Moving Average Price = Total Value / Total Quantity Invoice Receipt for Purchase Order Invoice price more than Purchase Order price * additional value add to Balance on hand value then divided by Balance on hand quantity Invoice price less than Purchase Order price * difference is deducted from the Balance on hand value (up to 0). The rest of the amount will becomes price variance. This will result in Balance on hand value is zero while there are Balance on hand quantity. If the Balance on hand value is enough to deduct, then the remaining value will be divided by Balance on hand quantity. When your Goods Issue price is constantly greater than your Goods Receipt price, it will result into zero value moving average price.

OSS note 185961 – Moving Average Price Calculation. 88320 – Strong variances when creating moving average price. Never allow negative stocks for materials carried at the moving average. Product Costing Master Data in SAPMarch 13th, 2009 by admin Leave a reply » Product Costing Master Data in SAPFollowing are the important related master data to Product Cost Controlling Integration.a. Material Master view related to Product Costingb. Bill of Materialc. Work Center d. Routinge. Production Order f. Product cost collector Material Master View related to Product CostingFollowing views of material master are important for Product Costing.1. Accounting Views2. Costing Views1. Accounting Views : Accounting View 1:a. Valuation Class field determines which GL account will be debited/ credited.b. Price Control : If material master is created for raw material category, price control should be selected as Vwhich determines valuation of the raw material will be done on Moving Average Price. If material master iscreated for SFG or FG, price control should be selected as S which determines valuation of the SFG or FG willbe done on Standard Price. Accounting View 2 :

sap material moving average price vs standard price The standard price/moving average price in material master is used to valuation/determine the value of your inventory. The price on the purchase order is the base price that you actually pay for the inventory. The purchase order price should be pulled from the info record. These can sometimes be out of sync. If the material is valued at a standard price, the difference between the purchase order price and the standard price will go to a price difference account. If the material is valued at a moving average price, the difference between the purchase order price and the moving average price will NOT go to a price difference account. The moving average price will simply be adjusted. We use a simple rule of any material purchased externally is valuated at a moving average price. Anything produced internally and placed into inventory is valuated at a standard price across all plants. Generally all raw materials (ROH), spare parts (ERSA), traded goods (HAWA) etc. are assigned as moving average price (MAP) because of the accounting practice of accurately valuating the inventory of such materials. These materials are subject to the purchase price fluctuations on a regular basis. Company generally use moving average on purchased materials with small cost fluctuations. It is most appropriate when the item is easily obtainable. The impact on margins are minimized which reduces the need for variance analysis. Furthermore, 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 (HALB) and finished products (FERT) are valuated with standard price because of the product costing angle. If these were to be MAP controlled, then finished/semi-finished product valuation would fluctuate due to data entry errors during backflushing of material and labour, production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice. Refer to OSS note 81682 - Pr.Contr.V for semi-finished and finished products. SAP recommends that standard price to be used for FERT and HALB. If actual price is required for valuation, make 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 Goods Receipt for Purchase Order Balance on hand quantity + Goods Receipts quantity Balance on hand value + Goods Receipts value New Moving Average Price = Total Value / Total Quantity Invoice Receipt for Purchase Order Invoice price more than Purchase Order price

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additional value add to Balance on hand value then divided by Balance on hand quantity

Invoice price less than Purchase Order price

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difference is deducted from the Balance on hand value (up to 0). The rest of the amount will becomes price variance. This will result in Balance on hand value is zero while there are Balance on hand quantity. If the Balance on hand value is enough to deduct, then the remaining value will be divided by Balance on hand quantity.

When your Goods Issue price is constantly greater than your Goods Receipt price, it will result into zero value moving average price.

OSS note 185961 - Moving Average Price Calculation. 88320 - Strong variances when creating moving average price. Never allow negative stocks for materials carried at the moving average.

Valuation with Moving Average price:

In the following example, inventory is valuated with the moving average price. The system analyses how stock coverage and stock shortage affect prices. For more information on the standard price and moving average price, see Price Control with and without the Material Ledger Problems with Stock Coverage Example 1: Stock Coverage at Goods Receipt 1. In the current period, there are a number of goods receipts for a material that is valuated with the moving average price: Goods receipt 1: 100 pieces at $1/pc. Goods receipt 2: 100 pieces at $1/pc. Goods receipt 3: 100 pieces at $1/pc. Valuation data for the material: Inventory quantity: 300 pieces Inventory value: 300 Moving average price: $1 2. A goods issue occurs for 180 pieces of this material. Valuation data for the material: Inventory quantity: 120 pieces Inventory value: 120 Moving average price: $1 3. In the invoice receipts for the goods receipts above, the invoice price varies from the purchase order price in all three cases: Invoice receipt 1: 100 pieces at $1.20/pc. Invoice receipt 2: 100 pieces at $1.20/pc. Invoice receipt 3: 100 pieces at $1.20/pc. Because in all three cases there was adequate stock coverage at the time of the invoice receipt (inventory quantity is at least as large as the invoice quantity), the price variances from all three invoices are completely debited to inventory. In total, the remaining inventory quantity is debited with a variance of $60. The individual orders do not check whether the remaining inventory quantity is also debited by other orders Valuation data for the material: Inventory quantity: 120 pieces Inventory value: $180 Moving average price: $1.50 The result is an excessively high valuation price for the material stock and subsequent material consumption, as all price variances from the various goods receipts flowed into the price. Example 2: Stock Coverage at Order Settlement During the settlement of variances on manufacturing orders, the system checks whether a corresponding stock coverage exists for the respective material. If multiple manufacturing orders were completed during a period and the material stock 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 stock, assuming adequate stock coverage. The individual orders do not check whether the period ending inventory was already debited with variances from another order! 1.

One piece of material FERT is produced per day for 10 days in one period and delivered to stock at a price of $100.

Valuation data for the material: Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD 2.

There is only 1 piece left in material stock at period end. A variance of $10 is calculated for each production order. Each individual production order checks stock coverage and determines that the variances can be posted completely to stock.

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 1 piece is debited by $100 and the moving average price for material FERT becomes $200. Thus, the remaining material inventory is charged with variances that it didn't even cause, resulting in an unrealistic price. Subsequent consumption is also valuated using this inflated price. The material stock value no longer reflects the actual cost of goods manufactured. The system reacts differently if it discovers a stock shortage. Problems with Stock Shortage Example 3: Stock Shortage at Invoice Receipt If the invoiced amount of an externally procured material is less than the amount with which the goods receipt is valuated, the invoice receipt should correct the material price by reducing the value of the material stock. If, however, there is a stock shortage at the time of the invoice receipt, the stock value is only reduced proportionally; the remaining amount is posted to the price difference account in Financial Accounting. Example 4: Stock Shortage at Order Settlement Goods Receipt for the Order: 1. One piece of material FERT is produced per day for 10 days in one period and delivered to stock at a price of $100. Valuation data for the material: Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD 2. There is 1 piece left in material stock at period end. A variance of $10 is calculated for each production order. The variances of a manufacturing order, 100 USD, should be settled with a lot size of 10 pieces. There is only 1 piece of the material left in stock. Thus, the material stock is only partially debited (with 10 USD). Valuation data for the material: Inventory quantity: 1 piece Inventory value: 20 USD Moving average price: 20DM Price difference account: 90 USD No Goods Receipt for the Order: If 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. Here, it cannot be guaranteed the material stock value reflects the actual position

Moving average price versus standard price for the valuation of raw materials  Speaker: Amadou LY  Print  E-mail

Every company at some stage considers whether to set inventory valuation to standard or moving average price. In this session you'll learn the advantages and disadvantages to both as well as the following knowledge points: 

The relationship of standard price and purchase price variance (PPV) analysis

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Standard price as a Key Performance Indicator (KPI) for Purchasing

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Advantages and disadvantages of standard price versus moving average price

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SAP® recommendations and common business practice

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The relationship between standard and moving average price and the material ledger

There are no fixed rules when to use standard or moving average price. There are, however generally accepted best business practices which you'll take away from this session.