You can choose standard or moving average price for inventory valuation. Let’s discuss each method in detail. You change the price control indicator with Transaction MM02 or by following menu path:
Logistics • Material Master • Material • Change
Navigate to the Costing 2 view to display the screen shown in Figure 1.
Figure 1: Costing 2 View Valuation Data Section
The Valuation Data section contains the Price control field which determines if a material is valuated by Standard (S) or Moving average (V) price. You can change from S to V price control at any time. The target field, in this case the Moving average price, is overwritten with the Standard price to endure there is no change in inventory valuation for existing stock.
SAP suggests you set standard price control for all semi-finished and finished products. Problems with moving average price can occur if you consume more assemblies than you produce during a period. There may not be enough stock coverage to absorb differences when settling production orders at period-end leading to an unrealistic moving average price. Read more details of stock coverage and moving average price in SAP Note 81682.
SAP also suggests you use moving average price for purchased materials. Inventory will be revalued for every goods and invoice receipt with a price different to the moving average price. While this provides the advantage of real-time inventory valuation, it has the disadvantage of not providing purchase price difference (PPV) postings for analysis.
If you set price control to standard for purchased materials all price differences will post to PPV general ledger accounts which you can analyze to help you understand why actual price differs to plan purchase price. While this promotes more accountability for purchased materials price, it has the disadvantage that inventory valuation may not be as accurate as with moving average price control.
Your goal of setting purchased materials to standard price is to progressively reduce PPV postings by correcting the cause of the variances. PPV postings will become less significant over time as you gain a better understanding of how the differences occur. You gain close-to real-time inventory valuation and purchasing controllability as you reduce PPV.
You can also activate SAP Material Ledger for detailed analysis of all difference postings. You can activate the Material Ledger without the actual costing component. In this case you generate a Material Ledger document for every inventory transaction. You can display a list of Material Ledger documents with Transaction CKM3 or by clicking the material price analysis button in the material master Accounting 1 view as shown in Figure 2.
Figure 2 Material Price Analysis Screen
To display a material ledger document expand the hierarchy and double-click an individual document number.
Your three options for inventory valuation have advantages and disadvantages:
- Standard price allows accountability for purchase price variances
- Moving average price provides more real-time inventory accuracy
SAP Material Ledger allows you to calculate actual cost by determining what portion of the variance is debited to the next-highest level using material consumption.