By John Jordan
In SAP S/4HANA, materials are typically valuated using either Standard Price (S) or Moving Average Price (V). The appropriate price control depends on the type of material and how you want inventory price differences to be handled.
You change the price control indicator with Transaction MM02 or by following the 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
The Valuation Data section contains the Price Control indicator, which determines whether a material is valuated using Standard Price (S) or Moving Average Price (V). Price control can be changed under certain conditions, subject to SAP's restrictions for the material and its current valuation. When changing from Standard Price to Moving Average Price, the moving average price is initialized using the standard price so that the change in price control does not itself change the inventory value.
SAP recommends Moving Average Price primarily for raw materials and trading goods. When goods movements or invoice receipts are posted at prices that differ from the current moving average price, the differences generally update the inventory value and moving average price. This provides a more current view of procurement costs, although price differences may be posted separately in certain circumstances.
You can read more details on stock coverage and moving average prices in SAP Note 81682 and Paul Ovigele's SAP Material Ledger blog.
When purchased materials use Standard Price, differences between the standard price and actual procurement costs are posted to price difference accounts rather than changing the inventory valuation. These differences can be analyzed to understand why actual procurement costs differ from the standard price.
Material Ledger is mandatory in SAP S/4HANA, while Actual Costing is optional. Material Price Analysis (transactions CKM3 and CKM3N) can be used to analyze material valuation transactions and price differences. When Actual Costing is active, Material Price Analysis also provides detailed information about the material's actual costs and price determination, as shown in Figure 2.
Figure 2: Material Price Analysis (CKM3)
You can expand the hierarchy and double-click a document number to display a material ledger document.
The choice of inventory valuation method depends on the material and the organization's costing requirements:
- Standard Price (S) provides stable inventory valuation and makes procurement and production variances visible for analysis.
- Moving Average Price (V) updates inventory values based on procurement costs and is generally recommended for raw materials and trading goods.
- Actual Costing with Material Ledger retains preliminary valuation during the period and can calculate actual material prices at period-end based on actual costs and variances.
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Glossary
Accrual Order
An accrual order enables you to monitor period-related accrual calculation between expenses posted in financial accounting and controlling.
Active Pharmaceutical Ingredient
An active pharmaceutical ingredient (API) is the substance in a drug that is pharmaceutically active and is by far the highest-cost ingredient in pharmaceutical products. One way to identify these costs is with a separate cost component by creating an API origin group and assigning it to API material masters with Transaction MM02 and an API cost component in the cost component structure with Transaction OKTZ.
Activity-Based Costing
While you typically allocate overhead costs during activity-type confirmations or with costing sheets, templates offer a more flexible alternative. Although setting up templates is more complex, they are set out logically and are worth considering as a flexible alternative for overhead costs.
Activity Type
An activity type identifies activities provided by a cost center to manufacturing orders. The secondary cost element associated with an activity type identifies the activity costs on the cost center and detailed reports.
Allocation Structure
An allocation structure allocates the costs incurred by a sender to specific cost elements or cost element groups. It is used for settlement and assessment purposes. An assignment maps a source cost element group to a settlement general ledger account.
Alternative Hierarchy
While there can only be one cost center standard hierarchy, you can create as many alternative hierarchies as you like. You create an alternative hierarchy by creating cost center groups.
Assembly Scrap
Assembly scrap is the percentage of assembly quantity that does not meet required quality standards. Assembly scrap is an output scrap because it increases the planned output quantity of items in the production process. You plan assembly scrap in the MRP1 view. It can be ignored with the Net ID checkbox in the basic data tab of a BOM item.
Automatic Account Assignment
Automatic account assignment enables you to specify a default cost center for each cost element within a plant using Transaction OKB9.
Availability Control
Availability control enables you to actively manage costs by issuing warnings and error messages when costs are incurred.
Backflushing
Backflushing is the automatic posting of a goods issue for components after their actual physical issue for use in an order. The goods issue posting of backflushed components is carried out automatically during confirmation.
Backflushing reduces the amount of work in warehouse management, especially for low-value parts. The material components from the BOM required in the operation should be assigned to the operations in the routing.
Base Quantity
All component quantities in a BOM relate to the base quantity. You increase the accuracy of component quantities by increasing the base quantity, similar in concept to the price unit.
Base Unit of Measure
Material stocks are managed in the base unit of measure. The system converts all quantities you enter in other units of measure (alternative units of measure) to the base unit of measure.
Bill of Material (BOM)
A bill of material is a structured hierarchy of components required to build an assembly or subassembly.
BOM Application
A BOM application is a costing variant component for automatic determination of alternative BOMs.
BOM Group
A BOM group is a collection of BOMs for a product or number of similar products.
BOM Item Component Quantity
The quantity of a BOM item that is entered in relation to the base quantity of the product.
BOM Item Status
Six indicators, such as costing relevancy, are contained in the Status/Long Text tab of a BOM item.
BOM Status
This controls the current processing status of the BOM. For example, a BOM may have a default status of not active when initially created, which then may be changed to active when the BOM is available for use in material requirements planning (MRP) and released for planned orders.
BOM Usage
This determines a section of your company, such as production, engineering, or costing. You define which item statuses can be used in each BOM usage; for example, all items in BOMs with a certain usage may be relevant to production.
BOMs, together with purchasing info records, allow cost estimates to calculate the material costs for assemblies.
By-Product
A by-product is a product that is produced in conjunction with other products. The system does not create a separate order item for each by-product. The material valuation of a by-product is always based on the price specified by price control in the material master. If a by-product is indicated as being relevant to costing in BOM, the total cost of the process is reduced by the costs of the by-products.
CKM3N - Material Price Analysis
CKM3N/CKM3 is used to analyze the price and cost components of a material in a plant, including variances and other Material Ledger values.
Co-Product
You select the co-product indicator in the MRP 2 and Costing 1 views if a material is a valuated product that is produced simultaneously with one or more other products. Setting this indicator allows you to assign the proportion of costs this material will receive in relation to other co-products within an apportionment structure.
Condition Type
A condition type is a key that identifies a condition. It indicates, for example, whether the system applies a price, a discount, a surcharge, or other pricing, such as freight costs and sales taxes.
Controlling Area Currency
You use the controlling area currency for cost accounting. You specify the controlling area currency when defining it in customizing for Controlling. You can assign multiple company codes with different currencies to a controlling area.
Cost Center
A cost center is master data that identifies where the cost occurred. At period end, a responsible person assigned to the cost center analyzes and explains cost center variances.
Cost Component
A cost component identifies costs of similar types, such as material, labor, and overhead, by grouping cost elements into the cost component structure.
Cost Component Group
Cost component groups allow you to display cost components in standard reports. In the most straightforward implementation, you create a cost component group for each component and assign each group to a corresponding cost component. You assign cost component groups as columns in cost estimate list reports and costed multilevel BOMs.
Cost Component Split
The cost component split refers to the combination of cost components that comprise the total cost of a material. For example, suppose you need to view three cost components— material, labor, and overhead —for your reporting requirements. In that case, the combination of these three cost components represents the split of these cost components.
Cost Component Structure
You define which cost components make up a cost component split by assigning them to a cost component structure. You assign cost elements and origin groups to cost components within the cost component structure.
Cost Component View
Each cost component is assigned to a cost component view. When you display a cost estimate, you can choose a cost component view, which filters the cost components displayed in the cost estimate.
Cost Element
Cost elements are included in a general ledger account. Primary cost elements identify external costs, while secondary cost elements identify costs allocated within Controlling, such as activity allocations from cost centers to manufacturing orders.
Cost Estimate
A cost estimate calculates the plan cost to manufacture a product or purchase a component. It determines material costs by multiplying BOM quantities by the standard price, labor costs by multiplying operation standard quantities by plan activity price, and overhead by costing sheet.
Cost Object
An SAP cost object, such as a cost center or internal order, describes where the cost occurs. A cost element or account describes what the cost is.
Costed Multilevel BOM
A costed multilevel BOM is a hierarchical overview of the values of all items of a costed material according to the material's costed quantity structure (BOM and routing). You display a costed multilevel Bill of Materials (BOM) on the left side of the cost estimate screen. You can also view a costed multilevel BOM separately with Transaction CK86_99.
Costing-Based Profitability Analysis
Costing-based profitability analysis enables you to evaluate market segments, which can be classified according to products, customers, orders (or any combination), or strategic business units, such as sales organizations or business areas concerning your company's profit or contribution margin.
Costing BOM
Costing BOMs are assigned a BOM usage of costing and are usually copied from BOMs with a production usage. You can adjust the costing BOMs to differ from the production BOMs if necessary. With system-supplied settings, standard cost estimates search for costing BOMs before production BOMs.
Costing Lot Size
The costing lot size should be close to actual purchase or production quantities to reduce lot size variance. Unfavorable variances may result if you create a production order for less than the costing lot size. Setup time is required to prepare equipment and machinery for production, and that preparation time is generally the same regardless of the quantity produced. Setup time spread over a smaller production quantity increases the unit cost. This applies to externally procured items because vendors typically quote higher unit prices for smaller amounts.
Costing Run
A costing run is a collective processing of cost estimates, which you maintain with Transaction CK40N.
Costing Sheet
A costing sheet summarizes the rules for allocating overhead from cost centers for cost estimates, product cost collectors, and manufacturing orders. The components of a costing sheet include the calculation base (a group of cost elements), the overhead rate (a percentage rate applied to the base), and the credit key (the cost center receiving credit).
Costing Type
The costing type determines if the cost estimate can update the standard price.
Costing Variant
The costing variant contains information on how a cost estimate calculates the standard price. For example, it determines whether the purchasing information record price is used for purchased materials or an estimated price is manually entered in the Planned Price 1 field of the Costing 2 view.
Currency Type
The currency type identifies the role of the currency such as local or global.
Demand Management
Demand management involves planning the quantities and dates of assemblies and defining the strategy for designing, producing, or procuring a finished product.
Dependent Requirements
Dependent requirements are caused by higher-level dependent and independent requirements when running MRP. Independent requirements, created by sales orders or manually planned independent requirement entries in demand management, determine lower-level dependent material requirements.
Deployment Options
SAP S/4HANA Cloud Private Edition:
SAP S/4HANA Cloud Private Edition is a managed cloud offering that enables a smooth, secure migration of an on-premise enterprise resource planning (ERP) system—including SAP ERP and SAP S/4HANA—to the cloud. This deployment option allows you to preserve your existing configuration, customization, and historical data from SAP ERP.
SAP S/4HANA Cloud Public Edition:
SAP S/4HANA Cloud Public Edition is a ready-to-run cloud ERP that delivers the latest industry best practices and continuous innovation. This deployment option is often abbreviated to SAP S/4HANA Cloud.
Detailed Reports
Detailed reports display cost element details of manufacturing orders and product cost collectors. During variance analysis, you can drill down on cost elements to display line-item reports.
Distribution Rule
You maintain distribution rules in settlement rules, as well as in manufacturing orders and product cost collectors.
Enhancement Package
A collection of new and improved business functions for SAP Business Suite and SAP ERP. These optional enhancement packages can be configured in a wholly modular fashion by activating only the latest features and functionalities customers want.
Event-Based Costing
As of SAP S/4HANA release 2022, event-based processing is available with Universal Parallel Accounting (UPA). According to the costing sheet, goods movements and confirmations trigger the overhead calculation. Depending on the order's status, this triggers either the posting of a journal entry for the WIP or the cancellation of any existing WIP and the calculation of production variances.
Event-Based Processing
As of SAP S/4HANA release 2022, event-based processing is available. Goods movements and confirmations represent events that trigger the calculation of overhead according to the costing sheet. Then, depending on the order's status, this triggers either the posting of a journal entry for the work in process (WIP) or the cancellation of any existing WIP and the calculation of production variances.
When moving to event-based production accounting, you can keep the overhead calculation rules we saw in Chapter 5, but you must flag your costing sheet as Evt. based, as shown for Costing Sheet 1010EP in Figure 19.15. It’s not possible to combine non-event-based costing sheets with event-based WIP because the assumption is that the creation of the reference document will trigger a first follow-on document for the overhead, followed by a follow-on document for either WIP or production variances, depending on the order status.
External Processing
An external vendor performs external processing of a manufacturing order operation. This is distinct from subcontracting, which involves sending material parts to an external vendor, who manufactures the complete assembly via a purchase order.
F.13 - Automatic Clearing
You use Transaction F.13 to automatically clear open items.
F.19 - Analyze GR/IR Account and Accrual
F.19 analyzes the GR/IR clearing account and posts adjustment entries for outstanding amounts to adjustment accounts. It makes the offsetting entry to the account for goods delivered but not invoiced or to the account for goods invoiced but not delivered.
FBL3N - G/L Account Line Item Display
FBL3N displays G/L line items only for the G/L accounts with the 'Display Line Item' checkbox selected.
FS10N - G/L Account Balance Display
This report lets you view the totals of a single or a range of G/L accounts. The totals are by month to give you an overview of how the account has changed. You access this report with transaction FS10N.
Goods Issue
A goods issue is the movement (removal) of goods or materials from inventory to manufacturing or a customer. When goods are issued, the inventory quantity is reduced.
Goods Receipt
A goods receipt is a goods movement used to post goods received from external vendors or in-plant production. Goods receipts for stock materials increase inventory quantities.
GR/IR
GR/IR is the SAP process for executing the three-way match—purchase order, goods receipt, and vendor invoice. You use a clearing account to record the offset of the goods receipt (GR) and invoice receipt (IR) postings. The postings are added to the clearing account balance as soon as they are completely processed.
GR/IR Account Maintenance
Transaction MR11 helps you correct the GR/IR balance when there is a difference in quantity (not price) between the invoice and the goods receipt. It should only be used when no more invoices or goods receipts are expected or can be posted.
Group Valuation
Group valuation aggregates legal entities while eliminating intercompany profits within the group.
Invoice Receipt
You enter a vendor invoice in SAP with Transaction MIRO or via menu path
Logistics - Materials Management - Logistic Invoice Verification - Document Entry - Enter Invoice.
Internal Order
An internal order monitors an organization's costs and revenue for short—to medium-term jobs. You can carry out planning at a cost element and detailed level, as well as budgeting at an overall level with availability control.
Legal Valuation
Represents the view of individual legal entities, showing transfers of goods according to strict legal reporting requirements.
Long-Term Planning
Long-term planning enables you to develop medium—to long-term production plans and simulate future production requirements using long-term MRP. You can also determine future purchasing requirements for vendor RFQs, update purchasing information records, and transfer planned activity requirements to cost center accounting.
Margin Analysis
Margin Analysis is the SAP S/4HANA evolution of account-based profitability analysis (account-based CO-PA). The Universal Journal combines financial and managerial accounting, recording all dimensions, including custom fields. Margin Analysis provides consistent financial information without requiring reconciliation and a comprehensive financial audit trail. All innovations developed for the Universal Journal are immediately available within Margin Analysis. A consistent approach ensures the common usage of ledgers, currencies, valuations, predictions, and simulations and their availability in planning and reporting.
Master Data
Master data is information that stays relatively constant over long periods. For example, purchasing information records typically contain vendor information, such as a business name, which remains relatively unchanged.
Material Ledger Drilldown Reporting
You access ML drilldown reporting with Transaction KKML0 via the following menu path:
Controlling - Product Cost Controlling - Actual Costing/Material Ledger - Material Ledger - Information System - Drilldown Reporting - Run Drilldown Report
Material Master
A material master contains all the information required to manage a material. Information is stored in views, each corresponding to a department or area of business responsibility. Views conveniently group information for users in different departments, such as sales and purchasing.
Material Requirements Planning (MRP)
MRP ensures material availability by monitoring stock levels and generating planned orders for Purchasing and Production.
MB5S - List of GR/IR Balances
MB5S displays differences between goods receipt (GR) and invoice receipt (IR) quantities and values.
ME23N - Display PO History
You use ME23N to display information about an existing purchase order to see whether the vendor invoice has been received and/or paid.
MR11SHOW - Display/Reverse MR11 Document
MR11 documents can be reversed using MR11_SHOW or by clicking on Account Maintenance, which documents the PO history. Be cautious if more than one PO has been corrected in an MR11 document, as it may reverse the entire document.
On-Premise
SAP S/4HANA On-Premise is deployed on infrastructure managed by the customer or its service provider and provides extensive control over configuration, customization, and upgrade schedules.
PA Transfer Structure
A PA transfer structure is used in costing-based CO-PA to assign costs and revenues from other applications to value and quantity fields in profitability analysis.
Process Order
A process order is a type of manufacturing order used in process industries. A master recipe and materials list are copied from the master data to the order. A process order contains operations that are divided into phases. A phase is a self-contained work step that defines the details of one part of the production process using a primary resource.
In process manufacturing, only phases are costed, not operations. A phase is assigned to a subordinate operation and contains standard activity values to determine dates, capacity requirements, and costs.
Procurement Alternative
A procurement alternative represents one of several methods for procuring a material. You can control the level of detail in which the procurement alternatives are represented through the controlling level. Depending on the processing category, there are single-level and multilevel procurement alternatives. For example, a purchase order is a single-level procurement, whereas production involves multilevel procurement.
Procurement Type
The procurement type in the MRP 2 view defines the material as assembled in-house, purchased externally, or both, as follows:
E: In-house production - A cost estimate will search for a BOM and routing.
F: External procurement - The system searches for a purchasing info record price.
X: Both - A planned order can be converted into a production or a purchase order.
Note: The special procurement type can be used to override the procurement type.
Product Cost Collector
A product cost collector collects target and actual costs during the manufacture of an assembly. Product cost collectors are necessary for repetitive manufacturing and optional for order-related manufacturing.
Production Order
For discrete manufacturing, a production order is used. A BOM and routing are copied from the master data to the order. The routing supplies a sequence of operations describing how to carry out work steps.
An operation refers to a work center where it is to be performed. It contains planned activities required to carry out the operation. Costs are based on the material components and activity price multiplied by a standard value.
Production Variance
Production variance represents the difference between the net actual costs debited to the order and the target costs based on the preliminary cost estimate and the quantity delivered to inventory. You calculate production variance with target cost version 1. Production variances are calculated for analysis and do not directly determine the settlement amount.
Production Version
A production version determines which alternative Bill of Materials (BOM) is used, along with which task list or master recipe, to produce a material or create a master production schedule. You can have multiple production versions with varying validity periods and lot-size ranges for one material.
Profit Center
A profit center receives postings parallel to cost centers and other master data, such as orders. Profit center accounting is integrated with the Universal Journal with S/4HANA. You usually create profit centers based on areas in a company that generate revenue and have a responsible manager.
Profit Center Valuation
Profit center valuation values goods exchanged between profit centers using transfer prices. Unlike group valuation, it explicitly records internal profits between profit centers.
Purchase Order
A purchase order is a legal contract that binds the supplier to provide the materials or services and the purchaser to pay upon receipt of the materials or services.
Purchase Price Variance
When raw materials are valued at the standard price, a purchase price variance will be posted during goods receipt if the goods receipt or invoice price differs from the material standard price.
Purchasing Info Record
A purchasing information record stores all the information relevant to procuring a material from a supplier. It contains the purchase price field, which the standard cost estimate uses to determine the purchase price.
SAP Universal Journal
The SAP S/4HANA Universal Journal provides a single source of financial and management accounting data. ACDOCA stores actual line items, while ACDOCP supports planning data.
SAP S/4HANA supports both period-end and event-based processing.
Special Procurement Type
The Special Procurement Type field, found immediately below the procurement type in the MRP 2 view, is used to define the procurement type more closely. For example, it may indicate if the item is produced in another plant and transferred to the plant you are analyzing. Special procurement type 30 indicates the material is procured by subcontracting.
Subcontracting
You supply component parts to an external vendor who manufactures the complete assembly. The vendor has previously supplied a quotation, which is entered in a purchasing info record with a subcontracting category.
Tracing Factor
Tracing factors determine the cost portions received by each receiver from senders during periodic allocations, such as assessments and distributions.
Unit Costing
Unit costing is a method that does not typically use BOMs or routings when developing new products. You create a preliminary structure of materials and activities in a view similar to a spreadsheet layout.
Valuation Approach
A valuation approach describes the values that are stored in accounting as a combination of a currency type (such as the group currency) and a valuation view (such as the profit center valuation view). The combination of various valuation approaches is known as a currency and valuation profile.
Valuation Class
The valuation class in the Costing 2 view determines which general ledger accounts are updated as a result of inventory movement or settlement.
Valuation Date
The valuation date determines which material and activity prices are selected when you create a cost estimate. Purchasing info records can contain different vendor-quoted prices for different dates. Different plan activity rates can be entered per fiscal period.
Valuation Grouping Code
The valuation grouping code allows you to assign the same general ledger account assignments across several plants with Transaction OMWD to minimize your work.
The grouping code can represent one or a group of plants.
Valuation Type
You use valuation types in the split valuation process, which enables the same material in a plant to have different valuations based on criteria such as batch. You assign valuation types to each valuation category, which specify the individual characteristics that exist for that valuation category. For example, you can valuate stocks of a material produced in-house separately from stocks of the same material purchased externally from vendors. You then select procurement type as the valuation category and internal and external as the valuation types.
Valuation Variant
The valuation variant is a costing variant component that allows different search strategies for materials, activity types, subcontracting, and external processing. For example, the search strategy for purchased and raw materials typically searches first for a price from the purchasing info record.
Valuation Variant for Scrap and WIP
This valuation variant allows you to select cost estimates for valuating scrap and WIP in a WIP-at-target-cost scenario. If the routing structure changes after a costing run, WIP can still be valued using the valuation variant for scrap and WIP, resulting in more accurate WIP valuation.
Valuation View
In the context of multiple valuation and transfer prices, you can define the following views:
- Legal valuation represents the view of individual legal entities, showing transfers of goods according to legal reporting requirements.
- Group valuation aggregates legal entities while eliminating intercompany profits within the group.
- Profit center valuation values goods exchanged between profit centers using transfer prices and explicitly records internal profits between profit centers.