Standard price & moving average price in SAP

In the SAP System, there are two types of price control: Standard price Moving average price

These two types of price control differ in how they handle price variances resulting from goods receipts or invoice receipts.

You determine the price control that should be used for a material when you create the material and enter the accounting data for it. You enter one of the following indicators in the Price control field to determine how the price is controlled:

S for standard price control V for moving average price control

1.Standard Price:Price determination on the price set by organization based on historical/ assume value which will be considered as standard price for that material.

During the valuation using the standard price (price control .S.), there are many stock postings to a price determined in the material master record, the standard price. Variances to this standard price are posted to the price differences accounts.

For statistical purposes, the system also calculates the moving average price for materials that are valuated at standard price in the material master record.

Md. Shalehur Rahman SamyAssociate Consultant, SAP MMIPE, Shahjalal University of Science & Technology.

Mobile : +8801725444492Email : shalehur@gmail.com

The system calculates the total stock value for materials with standard price control as follows:Total value = standard price (per base unit of measure) * total stock

Valuation using a standard price has the following features:

All inventory postings are carried out at the standard price Variances are posted to price difference accounts Variances are updated Price changes can be monitored

If a material is assigned a standard price (S), the value of the material is always calculated at this price. If goods movements or invoice receipts contain a price that differs from the standard price, the differences are posted to a price difference account. The variance is not taken into account in valuation.

Example:

Total quantity Total valueOpening stock 1000 PC 5000 BDT(standard price = 5 BDT)

Purchase 1000 PC 5000 BDT(Purchase price = 4BDT)Total 2000 PC 10000 BDT

#Price variance G/L =1000 BDT

2.Moving Average Price:Price determining on the basis of averaging the total value of the stock by distributing cost over stock.

In valuation using the moving average price (price control “V”), the system valuates goods receipts with the purchase order price and goods issues with the current moving average price.

The system automatically calculates the moving average price for every goods

movement as follows:Moving average price = total stock value / total stock quantity.

Any differences from the purchase order price that occur during the invoice receipt are posted directly to the stock account during stock coverage, and the system determines a new moving average price.

Valuation using a moving average price results in the following:

Goods receipts are posted at the goods receipt value. The price in the material master is adjusted to the delivered price. Price differences occur only in exceptional circumstances. Manual price changes are usually unnecessary. However, they are possible.

If a material is assigned a moving average price (MAP), the price is automatically adjusted in the material master record when price variances occur. If goods movements or invoice receipts are posted using a price that differs from the moving average price, the differences are posted to the stock account; as a result, the moving average price and the value of the stock change.

Example: Total quantity Total valueOpening stock 1000 PC 5000 BDT(Average price = 5 BDT)

Purchase 1000 PC 4000 BDT(Purchase price = 4BDT)Total 2000 PC 9000 BDTAverage price = 9000/2000 = 4.5 BDT

1.What is difference between standard price and moving average price?  When and how to use it?

Standard price are used for products that do not fluctuated frequently.  It is usually used for finished or semi-finished products.

Moving average price are used mainly for raw materials that are purchased externally.  The advantage of using moving average price for your raw materials is

that your inventory costs will always reflect the current market cost.

SAP strongly recommends that you do not select price control V for semi-finished products and finished products, because doing so will very easily cause the calculation of unrealistic valuation prices. SAP recommends:  Price control V for raw materials and trading goods; price control S for semi-finished products and products.

If you nevertheless select price control V, take care in the following situations:

1. Unrealistic prices occur if materials are produced and also retire during one period (that is, the inventory at the end of the period is smaller than the total of acquisitions from production orders) and if, in addition, several production orders belonging to a material were finished in this period, and the production order settlement calculates variances at the end of the period. Every single production order carries out an inventory coverage check and may therefore cause the moving average price to be changed. However, the individual production orders do not check whether the inventory available at the end of the period has already been debited by another production order. 

Example: On 20 workdays in the period, 1 piece of material xyz was produced for each day and delivered to the warehouse at a price of USD 1000. At the end of the period there is 1 piece at the warehouse. Since an activity price of a participating cost center was higher than planned, every single production order calculates cost of goods manufactured of USD 1100 during the settlement. Every single one carries out a inventory coverage check and finds out that the variance can be posted completely to the inventory. That is, the ending inventory of one piece is debited with USD 20 x 100 and it consequently receives a price of USD 3000. 

1. A settlement is carried out although not all costs have yet been posted to the order. This can even result in a price of 0 for the delivered product.

2. No period check of the costs is carried out on the order, that is, costs from previous periods may be settled.

3. Settling orders is already possible in the 'Delivery completed' status.

Solution: 

Standard price for products together with possible manual price changes. If you are required to valuate semi-finished and finished products with actual prices that correspond to the costs of the actual production, SAP recommends you use the function of the material ledger for this. Here, a periodic actual price is created that is

calculated on a much more reliable basis than the moving average price. A so-called price limited quantity is used which makes sure that in the above example price differences are proportionally taken into account (95% of the total price differences) when valuating the 19 pieces withdrawn from material xyz which results in a periodic actual price of 1100 USD. In addition, it is possible as of Release 4.5 to even take into account the variances of the actual prices of the raw materials in the valuation of the semi-finished and finished products that are manufactured from it. 

Q2.If we select standard price for any type of material or moving average price and then make po, it will pick from material master or what?

The Purchase Info Record have the FIRST priority.  When no PO info record is found, the Purchase Order will pick the user LAST enter price.  The PO module do not pick up any price from material master.