93471569 moving average price vs standard price
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8/13/2019 93471569 Moving Average Price vs Standard Price
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Moving Average Price Vs StandardPrice
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
contriution margins! and variances in manufacturing and purchasing. #se of moving average on
purchased materials may e appropriate where the item is an easily otained 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 semifinished 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 numer 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 monthend! y definition this eliminates any analysis of price variances on raw materials
and conseuently! on uyer performance.
/. $f (su) assemlies are also carried at moving average! it is e0tremely difficult to identify thesource of fluctuating valuation since many materials in the 1M may contriute 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. $n situations of rapid inventory turnover! use of moving average on (su)assemlies may result in
variance postings due to inadeuate stoc& coverage to asor settlement ad3ustments. Attempting to
settle more often 4 automatically may not e feasile if not all costs have een posted.
5. Moving average can e set to "ero and will not generate any warnings during transactions (i.e. no
%$ 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 1M 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 higherlevel orders8 any cost under4overruns of the component would e reflected later on the
higher level orders.
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9. The moving average for a material may e changed directly via t4c M-'! unli&e the more
formali"ed cost rollup 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 thencurrent 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 sutle error possile. =ven for materials eing carried at moving average! the cost rollup
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
?asdelivered@ settings for valuation variant 66' (used for oth cost rollups and goods receipt)! are:
a. Planned price. Standard cost
c. Moving average cost
This means that in a cost rollup! if the lower level item is eing carried at moving average! has a
costing view! and has een included in a cost rollup! 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 uiltin 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 manualy M-' transaction! or y calculation in 7 for finished and semifinishedproducts). Moving Average price change every good receipt! if price on purchase order is diferent from price inmaterial 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 standardprice in material master always e posted on other costs or other revenues in %$. $f you have moving averageprice in material master! on stoc& account in %$ SAP posts per price in purchase order and changes price inmaterial master! and there diferences not posts./. Posting diferences etween price on invoice and on purchase order in $nvoice verification. %or standardprice diferences SAP always posts in %$ on other costs or other revenues account. %or moving average price! ifuantity 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 onstoc& is less then uantity on invoice.
>aving read your original uestion on the difference etween the two pricesand the suseuent responses $ feel $ can offer you some advice on whichvalue to use for aw Materials vs %inished Products.
%irstly the choice should e ased on the accounting standard that isappropriate in your country. ur organisation values stoc& using the twomethods where all finished products are valued ased on standard whileingredients purchased e0ternally of the organisation are valued at movingaverage. >aving said that there are always e0ceptions as the e0ternalproducts are used in the valuation of finished goods! so even though thosegoods are valued at standard they do have components which are ased on
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moving average.
There should not e any need to do 3ournaling of differences in SAP as thevalues are carried in the material ledger at moving average or standard andaccounting entries will alance out as the material ledger values are usedin the oo&s of account. There is no reconciliation etween moving averageand 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 onlyas 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 MP (!) to Standard Price (S)for a ra" material even though there
is stock in accounting # vie" and material documents in M$%# for movement type #&#
against purchase order' # etc. I had to change the MP to e*ual Standard price throughM+# before I could change. ,he material had a released standard cost.
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-enerally all ra" materials (+O)' spare parts (/+S)' traded goods (0) etc. are
assigned as moving average price (MP) because of the accounting practice of accurately
valuating the inventory of such materials. ,hese materials are sub1ect to the purchase pricefluctuations on a regular basis.
Company generally use moving average on purchased materials "ith small cost fluctuations.
It is most appropriate "hen the item is easily obtainable. ,he impact on margins are
minimi2ed "hich reduces the need for variance analysis. 3urthermore' the administrativeeffort is lo" as there are no cost estimates to maintain. ,he cost reflects variances' "hich are
closer to actual costs.
,he semi4finished goods (5$) and finished products (3/+,) are valuated "ith standard
price because of the product costing angle. If these "ere to be MP controlled' thenfinished6semi4finished 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.
SP 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" SP 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 theremaining 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.
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sap material moving average price vs standard priceThe standard price4moving average price in material master is used to valuation4determine the value ofyour 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 cansometimes 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 valuedat a moving average price! the difference etween the purchase order price and the moving averageprice will CT 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 asmoving average price (MAP) ecause of the accounting practice of accurately valuating the inventory ofsuch materials. These materials are su3ect to the purchase price fluctuations on a regular asis.7ompany generally use moving average on purchased materials with small cost fluctuations. $t is mostappropriate when the item is easily otainale. The impact on margins are minimi"ed which reduces theneed for variance analysis. %urthermore! the administrative effort is low as there are no cost estimates tomaintain. The cost reflects variances! which are closer to actual costs.The semifinished 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 finished4semifinished productvaluation would fluctuate due to data entry errors during ac&flushing of material and laour! productioninefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costingpractice.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. $f actual price is reuired forvaluation! ma&e used of the functions of material ledger where a periodic actual price is created which ismore realistic. e.g. how SAP calcualte the moving average price Boods eceipt for Purchase rder1alance on hand uantity F Boods eceipts uantity1alance on hand value F Boods eceipts valueCew Moving Average Price G Total Value 4 Total Huantity$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 willecomes price variance. This will result in 1alance on hand value is "ero while there are1alance on hand uantity. $f the 1alance on hand value is enough to deduct! then the remainingvalue will e divided y 1alance on hand uantity.
Dhen your oods !ssue price is constantl" greater than "our oods #eceipt price! it will result into"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 $oving Average price%
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$n the following e0ample! inventory is valuated with the moving average price. The system analyses howstoc& coverage and stoc& shortage affect prices.%or more information on the standard price and moving average price! see Price 7ontrol with and withoutthe Material Eedger Pro&lems with Stoc' Coverage()ample 1%
Stoc' Coverage at oods #eceipt'. $n the current period! there are a numer of goods receipts for a material that is valuated with themoving 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
/. $n the invoice receipts for the goods receipts aove! the invoice price varies from the purchase order
price in all three cases:$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 adeuate 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 invoicesare completely deited to inventory. $n total! the remaining inventory uantity is deited with a variance ofI,6. The individual orders do not chec& whether the remaining inventory uantity is also deited y otherordersValuation 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 suseuent materialconsumption! as all price variances from the various goods receipts flowed into the price.
()ample 2%Stoc' Coverage at *rder SettlementJuring the settlement of variances on manufacturing orders! the system chec&s whether a correspondingstoc& coverage e0ists for the respective material. $f multiple manufacturing orders were completed duringa period and the material stoc& at the end of the period is smaller than the sum of the receipts fromproduction orders! variances from all production orders are allocated to the material stoc&! assumingadeuate stoc& coverage.The individual orders do not chec& whether the period ending inventory was already deited withvariances from another orderK
'. ne piece of material %=T is produced per day for '6 days in one period and delivered tostoc& at a price of I'66.
Valuation data for the material:Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD
-. There is only ' piece left in material stoc& at period end. A variance of I'6 is calculated for eachproduction order. =ach individual production order chec&s stoc& coverage and determines thatthe variances can e posted completely to stoc&.
Valuation data for the material at period end:Inventory quantity: 1 piece Inventory value: 200 USD Moving average price: 200 USD
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The ending inventory of ' piece is deited y I'66 and the moving average price for material %=Tecomes I-66.Thus! the remaining material inventory is charged with variances that it didnt even cause! resulting in anunrealistic price. Suseuent consumption is also valuated using this inflated price. The material stoc&value no longer reflects the actual cost of goods manufactured.The system reacts differently if it discovers a stoc& shortage.Pro&lems with Stoc' Shortage
()ample +% Stoc' Shortage at !nvoice #eceipt$f the invoiced amount of an e0ternally procured material is less than the amount with which the goodsreceipt is valuated! the invoice receipt should correct the material price y reducing the value of thematerial stoc&. $f! however! there is a stoc& shortage at the time of the invoice receipt! the stoc& value isonly reduced proportionally8 the remaining amount is posted to the price difference account in inancial
!ccounting .()ample ,% Stoc' Shortage at *rder Settlementoods #eceipt for the *rder%'. ne piece of material %=T is produced per day for '6 days in one period and delivered to stoc& at aprice of I'66.Valuation data for the material:Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD-. There is ' piece left in material stoc& at period end. A variance of I'6 is calculated for each productionorder.
The variances of a manufacturing order! '66 #SJ! should e settled with a lot si"e of '6 pieces. There isonly ' piece of the material left in stoc&.Thus! the material stoc& is only partially deited (with '6 #SJ).Valuation data for the material:Inventory quantity: 1 piece Inventory value: 20 USD Moving average price: 20DM "rice #ierenceaccount: %0 USDo oods #eceipt for the *rder%$f variances were calculated for a manufacturing order in one period even though there were no goodsreceipts for that order in that period (such as with followup costs) the entirety of these variances areposted to the price difference account. >ere! it cannot e guaranteed the material stoc& value reflects theactual position
Moving average price versus standard price for the valuation ofraw materials
SpeakerB madou 5
/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
SPF recommendations and common business practice
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,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"evergenerally accepted best business practices "hich youDll take a"ay from this session.