Material price determination in SAP S/4HANA controls how material prices are calculated and how inventory is valued in SAP Material Ledger. The material master Accounting 1 view contains two related settings: Price Control (S or V) and Price Determination (2 or 3).
Price control determines whether current-period inventory transactions use a standard price (S) or moving average price (V). Price determination specifies transaction-based processing (2) or single-level and multilevel processing (3), which supports Actual Costing.
SAP Material Ledger is mandatory for inventory valuation in SAP S/4HANA, while Actual Costing remains optional. Selecting price determination 3 does not, by itself, activate Actual Costing or complete the closing process.
The available material price determination settings are shown in Figure 1.
Figure 1 Material Price Determination Field
Price Determination 2: Transaction-Based
With price determination 2, SAP determines material values based on transactions recorded during the accounting period.
Two price control settings are available:
- S — Standard Price: Inventory transactions are valued at the standard price. SAP calculates the moving average price for information purposes.
- V — Moving Average Price: Inventory is valued using a moving average price that changes as relevant transactions are posted.
Transaction-based price determination is commonly used when materials do not require periodic Actual Costing calculations.
Price Determination 3: Single-Level and Multilevel
Price determination 3 supports SAP Actual Costing by enabling the calculation of periodic unit prices (PUPs) using price differences accumulated during the accounting period.
For normal current-period processing with price determination 3, price control must be set to S (Standard Price). Before changing a material from 2/V to 3/S, follow the supported change procedure and confirm the relevant Actual Costing activation and startup requirements for your edition and release.
During the period, relevant material movements are valued at the standard price, while SAP Material Ledger collects price differences for Actual Costing.
At period end, Actual Costing calculates the periodic unit price (PUP) by considering price differences directly attributable to a material through single-level price determination and, where applicable, differences allocated from lower-level materials through multilevel price determination.
Price Control and Price Determination: Valid Combinations
The normal current-period combinations are summarized in Table 1. They should not be confused with previous-period valuation indicators updated during an Actual Costing closing entry.
| Price Control | Price Determination | Current-Period Valuation and Closing |
|---|---|---|
| V — Moving Average | 2 — Transaction-Based | Moving average valuation; does not participate in single-level and multilevel Actual Costing. |
| S — Standard Price | 2 — Transaction-Based | Standard-price valuation; does not participate in single-level and multilevel Actual Costing. |
| S — Standard Price | 3 — Single-Level/Multilevel | Standard price during the period; periodic actual price calculation requires active Actual Costing and the applicable closing steps. |
Table 1: Price Control and Material Price Determination Combinations
The appropriate combination of price control and material price determination depends on the organization's inventory valuation requirements and whether Actual Costing is used.
Price determination 2 supports transaction-based valuation with either standard price or moving average price. Price determination 3 supports single-level and multilevel Actual Costing using standard price control.
For a comparison of valuation methods, see our article on Choosing Standard or Moving Average Price.
Standard Price and Periodic Unit Price: Example
Assume a simplified material has no opening inventory, receives 100 units at a standard price of 10.00 per unit, and retains all 100 units at period end. Eligible price differences of 200.00 are fully allocated to those units, with no other quantities, costs, or allocation restrictions.
- Inventory at standard price: 100 × 10.00 = 1,000.00.
- Actual cost including the allocated differences: 1,000.00 + 200.00 = 1,200.00.
- Periodic unit price: 1,200.00 ÷ 100 = 12.00.
The example illustrates the difference between preliminary material valuation and the periodic actual price. Calculating a PUP does not automatically replace the current standard price. Inventory and consumption revaluation depend on the selected closing options and configuration.
Setup and Closing Checks
- Agree the valuation requirement: Decide whether the material needs transaction-based valuation or periodic Actual Costing.
- Check the material settings: Review price control and price determination together, for the correct material and valuation area.
- Verify activation and startup: Confirm Material Ledger and, where required, Actual Costing readiness. Use the supported procedure for changing existing materials.
- Test the complete flow: Include receipts, invoices, consumption, reversals, and closing. Reconcile quantities, standard values, collected differences, and calculated prices.
- Confirm revaluation choices: Document whether inventory and consumption should be revalued and verify the resulting accounting postings.
For the wider process, see our Material Ledger overview and Actual Costing guide.
SAP documentation: Price Control and Material Price Determination; Setting Material Price Determination.
Conclusion
Price determination 2 supports transaction-based valuation with either standard or moving average price. Price determination 3 supports periodic Actual Costing with standard-price valuation during the period. Choose the combination that fits your valuation requirements, confirm activation and material settings, and test the closing process before relying on the calculated periodic unit price.
Need Help with Material Ledger Price Determination?
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About the Author
Rosana Fonseca, an independent SAP consultant since 2000, is certified in SAP FICO and has extensive experience in global SAP projects. Rosana is originally from Brazil, a Canadian citizen in Toronto, and is the author of Practical Guide to SAP Material Ledger.
Glossary
Actual Costing
An optional Material Ledger process that calculates periodic actual material costs. Inventory and consumption revaluation depend on the selected closing options and configuration.
Material Ledger
SAP functionality that supports inventory valuation in multiple currencies and valuations and provides the foundation for optional Actual Costing in SAP S/4HANA.
Material Master
The SAP master record containing material information, including price control and price determination settings used for inventory valuation.
Moving Average Price
A material valuation price recalculated based on relevant goods receipts and invoice postings.
Multilevel Price Determination
Rolls eligible price differences through production levels to receiving materials.
Periodic Unit Price (PUP)
A periodic actual material price calculated from the relevant costs, allocated differences, and quantities under Actual Costing. It is distinct from the standard price used for current-period postings.
Preliminary Material Valuation
The valuation used for material movements during the period before Actual Costing determines the periodic unit price. Materials using price determination 3 are valued at standard price during normal current-period processing, with relevant differences collected separately. See Preliminary Material Valuation in our Actual Costing guide for more detail.
Price Control S
Values material inventory using a standard price.
Price Control V
Values material inventory using a moving average price.
Price Determination 2
Transaction-based price determination without the single-level and multilevel Actual Costing process.
Price Determination 3
Single-level and multilevel price determination used with Material Ledger Actual Costing to calculate periodic actual material costs.
Single-Level Price Determination
Allocates eligible price differences at the individual material level.
Standard Price
A predetermined material valuation price, with differences recorded separately.