By Paul Ovigele
SAP Material Ledger helps you understand inventory values and material cost differences. Its optional Actual Costing functionality calculates period-end material costs while retaining standard cost as a benchmark during the period.
This introduction explains how standard price, moving average price, and Actual Costing fit together. For SAP S/4HANA: Material Ledger is mandatory for inventory valuation; Actual Costing remains optional. ERPCorp has updated Paul’s original introduction to clarify these distinctions.
Standard Price: A Stable Benchmark
With price control S, material transactions are generally valued at the standard price. Relevant procurement and production differences are recorded separately. This gives your team a consistent basis for examining purchasing and manufacturing performance.
Paul’s original article raises an important question: what happens to production cost differences when some of the related output remains in inventory at period-end?
Without an applicable revaluation process, those differences can remain in profit-and-loss accounts even when part of the material is still in stock. A manual journal may adjust an aggregate inventory value, but it does not provide the material-level detail of an Actual Costing calculation.
Moving Average Price: Transaction-Based Valuation
With price control V, the moving average price is based on inventory value divided by inventory quantity. Valuation-relevant receipts and invoice differences can change the price. Goods issues normally use the current moving average price.
Stock coverage matters when an invoice price differs from the goods receipt price. If material has already been consumed, the remaining stock may not absorb the full invoice difference. The portion not assigned to inventory is posted to a price difference account under the applicable posting logic.
The sequence of receipts, consumption, and invoices therefore matters. Moving average price is not necessarily the latest supplier price or the actual cost of all consumption for the period. For a fuller comparison, read SAP Standard Price vs. Moving Average Price in S/4HANA.
How Actual Costing Complements Standard Costing
Material Ledger supports inventory values in configured currencies and valuation views. Actual Costing adds a periodic calculation that collects and allocates relevant cost differences. These are related capabilities, with separate implementation decisions.
Table 1 compares the role of each approach.
| Approach | Main Purpose | Treatment of Cost Differences |
|---|---|---|
| Standard Price | Provide a stable valuation benchmark. | Relevant differences are collected separately from preliminary inventory valuation. |
| Moving Average Price | Update the valuation price through relevant transactions. | Inventory coverage and transaction timing affect how differences are assigned. |
| Actual Costing | Calculate periodic actual material costs. | Allocate relevant differences across materials, ending inventory, and consumption according to the configured process. |
Table 1: Standard price, moving average price, and Actual Costing compared.
The periodic unit price (PUP) is the calculated actual material price for the period. It complements standard costing rather than automatically replacing the standard price used for preliminary valuation.
Single-Level and Multilevel Price Determination
Actual Costing considers differences at individual materials and across production levels:
- Single-level price determination considers differences directly attributable to a material.
- Multilevel price determination allocates relevant lower-level differences to higher-level materials using actual consumption relationships. A raw-material price difference can therefore contribute to the actual cost of the finished product that consumed it.
For periodic Actual Costing, participating materials require price determination 3 and standard price control S, together with the required Actual Costing activation. Single-level and multilevel calculations are stages within that process. See SAP Material Ledger Price Determination: 2 vs. 3 for the material-master settings.
Inventory and Consumption Revaluation
Depending on configuration and closing choices, Actual Costing can revalue ending inventory and consumption, including cost of goods sold. Calculating a PUP does not automatically post every difference: your team must review allocation results and select the appropriate posting options.
Updating a subsequent period’s standard price from calculated actual costs is a separate price-update decision. For activation and closing details, read What Is Actual Costing in SAP Material Ledger?.
Make Sense of Your Material Cost Differences
ERPCorp helps your team review Material Ledger settings, trace purchasing and production cost differences, and improve the Actual Costing close.
Glossary
Actual Costing
An optional Material Ledger function for calculating periodic actual material costs and allocating relevant price differences.
Material Ledger
SAP’s inventory valuation component for configured currencies and valuation views. It is mandatory for inventory valuation in S/4HANA.
Moving Average Price
The price used with price control V, based on inventory value and quantity and affected by valuation-relevant transactions.
Periodic Unit Price (PUP)
The actual material price calculated for a period from relevant preliminary values and allocated price differences.
Revaluation of Consumption
An Actual Costing posting option that assigns relevant differences to consumption, potentially including cost of goods sold.
Standard Price
A predetermined valuation price used with price control S as the benchmark for preliminary valuation.
Stock Coverage
The remaining inventory quantity available to absorb a valuation adjustment, such as an invoice price difference.
Reference and Further Reading
SAP’s Price Control and Material Price Determination documentation explains the relationship between material price determination and price control. For a broader overview, see SAP Material Ledger in S/4HANA: Overview and Actual Costing.