SAP Standard vs Moving Average Price

By John Jordan

You choose either standard or moving average price for inventory valuation. Let’s discuss each 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 at 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 reccomends standard price control for all semi-finished and finished products since 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 and our SAP Material Ledger blog.

SAP also suggests you use moving average price for purchased materials. Inventory is 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.

To set up your SAP Material Ledger and SAP Actual Costing correctly our ERPCorp SAP experts are available to assist you.

If you set price control to standard for purchased materials all price differences will post to PPV GL 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 display a list of Material Ledger documents with Transaction CKM3 or by clicking the material price analysis button in the Accounting 1 view to display the screen shown in Figure 2.

Figure 2 Material Price Analysis Screen

To display a material ledger document expand the hierarchy and double-click a 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 the portion of the
  
  variance debited to the next-highest level using material consumption.
  
  
  

Glossary

CKM3N - Material Price Analysis

Transaction CKM3N Material Price analysis report / Price History View report CKM3N/CKM3 is used to analyze the price consumed for a material in a plant along with overhead.

Moving Average Price 

The moving average price in the Costing 2 view determines the inventory valuation price if price control is set at moving average. It is updated during goods receipt.

Price Control

The Price control in the Costing 2 view determines whether inventory is valuated at the standard or the moving average price.

Standard Price

The standard price in the Costing 2 view determines the inventory valuation price if price control is set at standard (S). The standard price is updated when a standard cost estimate is released. You normally value manufactured goods at the standard price.