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Material valuation is one of the “must-known” topics for all SAP Material Management(MM) learners, especially for MM consultant, FI consultant, and FI & MM administrator ina company. In a company, the material valuation procedure must be determinedtogether with accounting department. It determines, among other things, how a materialtransaction recorded in accounting journal.

The first thing that we should know in material valuation is the Valuation Area. It is theorganizational level at which material is valuated. In SAP R/3 system, there are twopossible organizational level at which material is valuated:

1.  Plant.When stock is valuated at plant level, we can valuate a material in different plantsat different prices. Valuation must be at this level in the following cases:

  If we want to use the application component Production Planning (PP) orCosting

  If our system is a SAP Retail system2.  Company Code.

When stock is valuated at company code level, the valuation price of a material isthe same in all of a company’s plants (that is, in a company code). 

SAP recommends that we set material valuation at Plant level.We can define the valuation level in configuration process with T-Code SPRO and willbe valid for whole client. The configuration process can be seen at these screen shots:

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The above image is © SAP AG 2010. All rights reserved 

The above image is © SAP AG 2010. All rights reserved If we’ve never defined this before, the “Valuation Level” screen will be editable, but inthis example it is not editable because it has been defined before.Defining the valuation level in Configuring is a fundamental setting, and is very difficult toreverse.The transactions in Inventory Management that can affect the valuation price of materialin accounting record (depending on the type of price control) are:

  Goods Receipts.  Goods Issues.  Transfer Postings (for example, a stock transfer between two plants or a transfer

posting from one material to another).  Postings in Invoice Verification.

We must create the accounting data for each valuation area for all valuated materials sothe above transactions can be carried out for those materials. In the accounting view ofmaterial master data, we can get an overview of the present valuation.Valuation of goods receipts depends on the price control procedure we set in the

material master record. In the R/3 System, material valuation can be carried out

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Posting at Standard Price. 

A receipt posted to a stock account is generally posted at the standard price. Differencesbetween the order price and the standard price are posted to an “Expenses/revenuefrom price differences” account (2). 

Differences between the invoice price and the order price are posted to an“Expenses/revenue from price differences” account (3). The moving average price is also recorded in the material master when the material isvaluated at a standard price. It indicates the extent to which the standard price differsfrom the delivered price.

Characteristic of Price Control “V”. 

  Receipts are valuated at their actual price (as per purchase order, invoices,…)   The system modifies the price in the material in the material master according to

the delivered price.  Issues are generally valuated at the current material price.  The data used for cost accounting / controlling purposes therefore contains price

fluctuations.  Only in exceptional circumstances does the system post at a difference to the

“Expenses/Revenues from price differences” account (The system makes aposting to an “Expenses/revenue from price differences” account for a materialvaluated at a moving average price only in the case of a debit or credit when thestock coverage in the company code is smaller than the quantity to be debited orcredited, e.g.: When we reverse an invoice, the account movements made whenthe invoice was posted cannot always simply be reversed. For example, if therewas sufficient stock coverage when we posted an invoice with a price variance for

a material with moving average price, but when we reverse the invoice, there isinsufficient stock coverage, the R/3 System posts the price difference in the creditmemo to a price difference account, although the price variance was debited to thestock account when we posted the invoice)

  We can change material prices if required (generally at the end of period). Thiscauses the system to revaluate the total stock for a valuation area.

Postings at Moving Average Price. 

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 Receipts to the stock account are posted with the value Quantity x Order price. Themoving average price is recalculated after every transaction and is therefore adjusted inline with delivered prices (2)/(4).

Differences between the order price and the invoice price are debited to the stockaccount, as the invoiced quantity is in stock (3).

The difference between the order price and the invoice price is only posted for the 50pieces in stock. For the remaining 50 pieces that are not in stock, the difference betweenthe order price and the invoice price is posted to an “Expenses/revenue from price

differences” account (6).