Friday, August 26, 2011

Material Valuation Procedure: Moving Average Price and Standard Price in SAP MM - Material Valuation Procedure in SAP MM


Material Valuation Procedure in SAP MM: In most Goods Movement in Inventory Management, the stock quantities therefore the stock  value changes.During Goods Receipt the goods value increases and during Goods Issue the stock value decreases.The quantity and value of the material stock and the material price which is called Valuation price are updated in the Material Master Record.The Material Valuation determines and maintains the stock value of a material.The formula for Stock value is given below-
Stock Value = Stock Quantity*Material Price
Material Valuation establishes a connection between Material Management and Financial Accounting because Material Valuation accesses G/L Accounts in Financial Accounting and updates them.

Valuation Level in SAP MM: The valuation area is the Organizational Level at which material is valuated.We can decide whether the valuation area is determined at Company Code Level or Plant Level.
Valuation Area = Company Code
Means Materials have the same value across the enterprise or valuated in all Plants of a Company Code.
Valuation Area = Plant
Means each Plant has it's own price.Valuation data of a material is created to each Plant. 

Valuation Class in SAP MM: The Valuation Class is used to determine which stock account is to be  updated during the Goods Movements of a material.

Material Valuation Procedure in SAP MM: There are the two types of price for the material valuation when we deal with the materials in Inventory Management and Invoice Verification. Material Valuation can be carried out according to Standard Price denoted by 'S' and Moving Average Price denoted by 'V'. 


Standard Price (S Price) in SAP MM: If we have defined the price control as 'S' (Standard Price) in the Material Master, the materials are valuated with price in Material Master only irrespective of the price in Purchase order.
"Variances of the price between Standard Price and Purchase Order Price are posted to the Price Difference Account (PDA)."

The procedure for Standard Price can be understood by following examples given below:

Case 1st: First we have defined price control as Standard Price 'S' in Material Master.If the Purchase Order Price is same as  Material Master Price 12 INR and we make the Goods Receipt for 10 Pcs.Then the Stock Material is valuated as Material Price as follows
Stock/Inventory (+)                     -          120 INR  (Stock Value*Stock Quantity)
GR/IR Clearing Account (-)        -           120 INR

Case 2nd: If the Purchase Order Price is 12 INR and Material Price  is 8 INR,when we make Goods Receipt for 10 Pcs, Material will be valuated with the Standard Price 10 INR only eventhough the Purchase Order Price is 12 INR now we see

Stock/Inventory (+)                    -       80 INR  (Stock Value*Stock Quantity)
GR/IR Clearing Account (-)       -       120 INR
Price Difference Account (+)      -       40 INR

Case 3rd: If the Purchase Order Price is 8 INR and Standard Price is 12 INR then the material will be valuated at Material Price only

Stock/Inventory (+)                            -         120 INR  (Stock Value*Stock Quantity)
GR/IR Clearing Account (-)                -         80 INR
Price Difference Account(PDA  - )      -         40 INR

" When the Client want to have the Valuation at a Fixed Price,then the Material Master should have always "Standard Price S" only.

Moving Average Price 'V' (V Price) in SAP MM: If we have defined Price Control as  Moving Average Price ('V') in Material Master then the material will be valuated based on Purchase Order Price only irrespective of the Material Master Price.
"Material Master Price keeps on changing whenever the Goods Receipts and Invoice is made depending on the Price of Purchase Order."

Moving Average Price (V) = Total Value/Total Stock

In case of Moving Average Price (V) , Normally whenever Goods Receipt is made in the system the material is valuated with the Purchase Order Price irrespective of the Material Master Price.

Example: If the Material Master Price is 10 INR and Price Control is as Moving Average Price 'V'.Purchase Order is raised for 18 INR and if Goods Receipt is made for this Purchase Order for 10 Pcs then

Stock/Inventory (+)                      -            180 INR
GR'IR Clearing Account (-)           -            180 INR

Change in Material Master Price: If before making the Goods Receipt, the stock is 20 Pcs and total value is 200 INR then the Material Master will be showing the Moving Average Price 'V' as 10 INR. Now if we make the GR of 10 Pcs at 12 INR , The Material Master Price will be 

                               Stock              Value                     Material Master Price

Before GR             20                   200 INR               10 INR (Stock Value (200)/Qty (20))

After GR              30 (20+10)    (200+120)        10.67 INR (320/30)

Now the Material Master Price will be changed as above Price 10.67 INR.


  1. nicely explained

  2. Will you please explain " split valuation " in the same manner as you explained the above keeping it as simple as possible.