65051068 28848645 SAP Material Valuation Basics

7/29/2019 65051068 28848645 SAP Material Valuation Basics

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SAP Material Valuation Basics - 1 ...................................................................................2

Material Valuation General ........................................................................................................... 2

Valuation Level..................................................................................................................................... 2

Valuation area = company code ................................................................................................ 3

Valuation area = plant..................................................................................................................... 3


Material Master Record Accounting Data ............................................................................. 4

Standard price ...................................................................................................................................... 5

Moving average price ....................................................................................................................... 5


Material : V price 20 EUR............................................................................................................... 6

Material : S price 20 EUR................................................................................................................ 6

Material Valuation Examples ....................................................................................................... 6

Posting to Moving Average Price (Example)...................................................................... 8

SAP Material Valuation Basics - 4 .................................................................................10

Stock Types, Valuation, GR in Warehouse - 1 ................................................................. 10

SAP Material Valuation Basics - 5.................................................................................12

Stock Types, Valuation, GR in Warehouse - 2 ................................................................. 12

SAP Material Valuation Basics - 6 .................................................................................14

Stock Types, Valuation, GR in Warehouse - 3 ................................................................. 14Documents at Goods Receipt............................................................ ........................................................... . 14


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SAP MATERIAL VALUATION BASICS - 1

his series of articles give an overview of the determination of valuation levels formaterials using the valuation area, and the two possible procedures for materialvaluation. These articles will also explain:

The significance of the valuation areaThe function of the valuation classMaterial valuation with the moving average priceMaterial valuation with the standard priceIn a company, most of the externally procured materials are stored before they arerequired for production or sales. The warehouse stocks of materials must be updatedon a quantity and value basis.

Material Valuation General

In most goods movements in Inventory Management, the stock quantity andtherefore also the stock value vary. In goods receipts, the stock value increases; ingoods issues, the stock value decreases. The quantity and value of the material stockand the material price (=valuation price) are updated in the material master record.You therefore also need a material master record for warehouse material. Thematerial valuation determines and maintains the stock value of a material. Thefollowing formula is used to calculate the stock value:Stock value = stock quantity * material priceFrom this formula it follows that the stock value changes when the stock quantity ormaterial price changes.During the valuation of a goods movement, not only the total value and, if necessary,the valuation price are updated in the material master record, but also the accounts inAccounting. Material valuation demonstrates a connection between MaterialsManagement (MM) and Financial Accounting (FI) because material valuation accessesG/L accounts in Financial Accounting and updates them. Material valuation isessentially controlled by two factors:System setting (Customizing)Material Master RecordThe material valuation is adjusted with SAP R/3 settings to meet the needs of yourdepartment. For system configuration, the following questions are defined:On which level are materials valuated?Which types of goods movements are relevant for valuation?Which accounts are posted to during a transaction?The following sections cover the questions about the valuation level and the settings

in the material master record. The movement type determines which types of goodsmovements are relevant for valuation. The settings for automatic accountdetermination determine which accounts are posted to during a transaction.

Valuation Level

The valuation area is the organizational level at which material is valuated. You candecide whether the valuation area is determined at company code or plant level.


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SAP MM Material Valuation Levels

Figure SAP MM Material Valuation Levels

Valuation area = company code

The valuation data of a material is created separately for each company code. Theprice control and valuation price of a material are valid for each company code. The

material is therefore valuated consistently in all plants of a company code.

Valuation area = plant

The valuation data of a material is created for each plant. The price control andvaluation price of a material are valid for each plant. The same material can thereforebe valuated differently in different plants. SAP recommends that you valuate materialat plant level. Valuation at plant level is mandatory if you want to use either theProduction Planning or Product Cost Accounting components or if your system is amySAP Retail system.Defining the valuation level in Customizing is a fundamental setting, and is verydifficult to reverse. (Customizing Enterprise Structure Definition Logistics

General Define Valuation Level)


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Material Master Record Accounting Data

In the material master record, you enter the necessary valuation data for a material inthe accounting data. Depending on the valuation area, you must specify either thecompany code or plant when maintaining the accounting data. When entering theaccounting data, you must answer the following questions:In which G/L account should the stock value of this material be managed?Is the stock of a material to be valuated at a constant price or should the price beadjusted to match the fluctuations of the cost price?The material type you selected when creating a material determines whether thematerial is to be valuated at all. The material type controls whether the stock is to bemanaged on a quantity and/or value basis and whether this update can be controlledat valuation area level.

SAP MM Material Valuation ClassesFigure SAP MM Material Valuation Classes

In automatic account determination, the SAP R/3 system works with valuation classes.The valuation class is used to determine which stock account is to be updated duringthe goods movements of a material.You can use the valuation class to combine materials for assigning G/L accounts sothat you do not have to manage a separate stock account for each material. Youmaintain the valuation class in the Accounting view of the material master record. Thevaluation class allowed for a material depends on the material type and can beconfigured in Customizing. A valuation class can also be assigned to several materialtypes. Figure SAP MM Material Valuation ProcedureThe price control procedure set in the material master record determines the value

used to valuate the goods receipt of a material. In SAP R/3, material valuation can becarried out according to the standard price (S price) or the moving average price (Vprice).


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Standard price

During the valuation using the standard price (price control S), there are many stockpostings to a price determined in the material master record, the standard price.Variances to this standard price are posted to the price differences accounts. Forstatistical purposes, the system also calculates the moving average price for materials

that are valuated at standard price in the material master record. This means that youcan spot major differences between the current procurement price and the standardprice, and react accordingly. The system calculates the total stock value for materialswith standard price control as follows:

Total value = standard price (per base unit of measure) * total stock

Moving average price

In valuation using the moving average price (price control V), the system valuatesgoods receipts with the purchase order price and goods issues with the currentmoving average price. The system automatically calculates the moving average pricefor 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 areposted directly to the stock account during stock coverage, and the systemdetermines a new moving average price.


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The following figure SAP MM Material Valuation of Goods Receipt clarifies bothvaluation procedures in a single example.

SAP MM Material Valuation of Goods ReceiptFigure SAP MM Material Valuation of Goods Receipt

Material : V price 20 EUR

The goods receipt for a purchase order of 10 pieces at 25 EUR is valuated with aprocurement price of 25 EUR. An amount of 10 at 25 EUR = 250 EUR is posted to thestock account. The offsetting entry for the same amount is posted to the GR/IRclearing account

Material : S price 20 EUR

The goods receipt quantity must be valuated with the standard price. The result of thegoods receipt for the purchase order of 10 pieces is an amount of 10 at 20 EUR = 200EUR. This amount is posted to the stock account. The difference of 50 EUR from theactual procurement value (10 at 25 EUR =250EUR) is posted to a price differencesexpense account. The offsetting entry with an amount of 10 at 25 EUR = 250 EUR isposted to the GR/IR clearing account.

Material Valuation Examples

The figures in this section describe the postings in Financial Accounting and theupdates in the material master record for a simple procurement process, once for theV price and once for the S price procedures. Initial stock quantity and value aredisplayed in the Initial situation column. Then a goods receipt for a purchase order of100 pieces at 2.40 is posted (second line). The process is completed with an invoice

receipt of 100pieces at 2.20 (third line).


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SAP MM Material Valuation STD PriceFigure SAP MM Material Valuation STD Price

SAP MM Material Valuation STD Price Goods ReceiptFigure SAP MM Material Valuation STD Price GR


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During goods receipt, the system updates the stock value and stock quantity atstandard price. It updates the GR/IR clearing account at the purchase order price. Itposts the difference between the purchase order price and the standard price to theprice difference account.

SAP MM Material Valuation STD Price Invoice ReceiptFigure SAP MM Material Valuation STD Price IR

When the incoming invoice is posted, the GR/IR clearing account is cleared at theorder price. The vendor (creditor) account is updated at the invoice price. It posts thedifference between the purchase order price and the invoice price to the Income fromprice differences account. It does not change the total stock value.

Posting to Moving Average Price (Example)

SAP MM Material Valuation Moving AverageFigure SAP MM Material Valuation MA Price


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During goods receipt, the system updates the stock value, stock account, and GR/IRclearing account at the purchase order price. The moving average price is recalculatedon the basis of the new stock value: V price (for each base unit of measure) = totalvalue/total stock.

SAP MM Material Valuation Moving Average GRFigure SAP MM Material Valuation MA Price GR

When the incoming invoice is posted, the GR/IR clearing account is cleared at theorder price. The vendor (creditor) account is updated at the invoice price. The systemposts the difference between the purchase order price and the invoice price to thestock account. It recalculates the stock value based on the invoice price.

SAP MM Material Valuation Moving Average IRFigure SAP MM Material Valuation MA Price IR

The system redetermines the moving average price based on the changed stockvalue. If the stock quantity in the invoice receipt is less than the invoice quantity, the

system posts part of the difference to the Expenditure/income from price differencesaccount instead of the stock account.


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Stock Types, Valuation, GR in Warehouse - 1

This series of articles cover the goods receipt of ordered goods into the warehouseand the effects that this goods receipt has on Inventory Management and Accounting.The material document and the accounting document are also discussed. Many of thegoods delivered to a company are first posted after receipt into the quality inspectionstock. After a successful quality check, the materials can then be released. Inaddition, we will also discuss briefly the stock types unrestricted-use, qualityinspection stock, blocked stock, and transfer postings.This article uses the process shown in the figure below, Stock Material Procurement:Goods Receipt. After material was requested from several vendors and then orderedfrom the most favorable vendor, the goods receipt is posted. Some of the deliveredgoods are posted to the quality inspection stock. The checked quantity is laterreleased with a transfer posting to the unrestricted-use stock.

SAP MM Stock Material Procurement-Goods Receipt

Figure SAP MM Stock Material Procurement-Goods Receipt


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Following transaction is used for stock overview.

Inventory Materials ManagementChoose Logistics Stock Overview (MMBE).StockEnvironmentManagementEnter material M-01 and plant 1000 to 3000 and execute the selection.Discuss the stock overview displayed and the navigation as follows:

Scroll with and Right columns or Left columns. Double-click on an organization level to display all stocks in one dialog box. Choose Extras Display material. Change the material without having to return to the selection screen

To simplify daily work in Inventory Management, several functions and reports containdetailed information about all materials and their stock data.

The stock overview is an analysis that delivers information about the stock situation ofan individual material. The material stocks are displayed in the stock overview for

each individual organizational level. Quantities posted for a particular stock type aretotaled for each organizational unit. You can display the stock overview forbatches/valuation type and special stocks (for example, consignment material), aswell as for organizational units client, company code, plant, and storage location.

SAP MM Stock OverviewFigure SAP MM Stock Overview

To display the stock overview, choose between different display versions. Thesedisplay versions differ in the listing and sequence of the individual stock types. InCustomizing for Inventory Management, the system administrator defines whichstocks are displayed in each column and the order in which they are displayed.


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For goods receipts, you decide which stock type a quantity is posted to. The stocktype is relevant for determining the stock available in Materials Planning and is usedfor withdrawals in Inventory Management.

SAP MM Valuated Goods ReceiptFigure SAP MM Valuated Goods Receipt

You can post a goods receipt for the warehouse into three stock types:

1. Unrestricted-use stock (no usage restrictions)2. Quality inspection stock (available from an MRP perspective, but no withdrawals

are possible for consumption)3. blocked stock (not usually available from an MRP perspective and no

withdrawals are possible for consumption)

Do not confuse the valuated stock type blocked stock with the non-valuated goodsreceipt blocked stock (otherwise known as GR blocked stock). In the purchase orderand material master, you can plan whether the material is to be posted to the qualityinspection stock. When the goods are received, you decide the stock type to which thematerial is posted.You always use movement type 101 to post goods receipts for a purchase order tovaluated stock. You can enter a stock indicator such as the movement type at itemlevel for the goods receipt, enabling you to differentiate between different stock types.You can post withdrawals for consumption only from unrestricted-use stock. From

quality inspection stock and blocked stock, you can withdraw only one sample, scrap aquantity, or post an inventory difference.


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SAP MM Transfer PostingFigure SAP MM Transfer Posting

If you want to withdraw goods from blocked stock or quality inspection stock forconsumption, you first have to carry out a transfer posting to unrestricted-use stock.You use the movement type to control the stock types involved in the transfer.

When you carry out a transfer posting, the stock type, batch number, or materialnumber is changed. A transfer posting can also involve an actual physical stocktransfer.

As for all goods movements, the system also creates a material document duringtransfer postings to show the transaction in the system. The system generatesaccounting documents only if a change in valuation is involved (for example, stocktransfer from plant to plant).


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Documents at Goods ReceiptThe document principle also applies in IT-based Inventory Management. A documentis the proof that a transaction involving stock changes has taken place. Documentsare stored in the system. A material document is created in SAP R/3 as proof of atransaction involving stock changes.If the goods movement is relevant to valuation, the system creates at least oneaccounting document in addition to the material document. Goods movements (goodsreceipts, goods issues, or transfer postings) are relevant to valuation when yourcompanys Accounting department is affected by them. For example, a goods receiptposting of a raw material usually results in an increase in the stock value of yourcurrent assets. If the raw material is only transferred within one plant, no postings are

made in Financial Accounting

SAP MM Documents for Goods Movement

Figure SAP MM Documents for Goods Movement


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As soon as a goods movement is posted, the quantities, material, movement type andorganization level can no longer be changed. If you want to correct errors, you mustcreate a new document. So that the postings of the incorrect document can bereversed, you must first cancel the incorrect document.

SAP MM Material and Accounting Documents

Figure SAP MM Material and Accounting Documents

The material document consists of a document header and at least one item. Theheader information includes the posting date and the name of the creator. The systemrecords the quantity of the material that is posted to a storage location of a plant atitem level. The accounting document records the effects of material movements onthe accounts. The document header contains generally applicable data, such as thedocument date, posting date, posting period, and document currency. The G/Laccount numbers and the associated amount posted are recorded at item level.The material and accounting documents are independent documents. You can identifythe material document by the material document number and the material documentyear. The accounting document can be uniquely identified by the company code, theaccounting document number, and the fiscal year. The company code in which the

accounting document is posted is taken from the plant in which the goods movementtakes place.


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SAP MM Effects of Goods ReceiptFigure SAP MM Effects of Goods Receipt

The figure provides an overview of all the key effects of a goods receipt referencing a

purchase order.

65051068 28848645 SAP Material Valuation Basics

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