Material Valuation Procedures

 Standard Price vs Moving Average Price

Ø  Valuation of goods receipts depends on the price control procedure you set in the material master record. In the R/3 System, material valuation can be carried out according to the moving average price procedure (V price) or the standard price procedure (S price).

Ø  In the standard price procedure (price control “S”), the system carries out all stock postings at a price defined in the material master. Variances are posted to price difference accounts.

Ø  In the moving average price procedure (price control “V”), the system valuates goods receipts with the purchase order price and goods issues with the current moving average price. The system automatically calculates the latter upon every goods movement by dividing the total value by the total stock quantity. Differences between the purchase order price and the invoice are posted directly to the relevant stock account if there is sufficient stock coverage.

Ø  You set the material valuation procedure you want to use in the accounting view of the material master record. In the R/3 System, you can carry out material valuation using the standard price procedure or moving average price procedure.

Ø  Irrespective of the valuation procedure set in the material master record, the system increases the stock quantity by the relevant goods receipt quantity when you post a goods receipt into stock.

Step1:

Ø  The initial stock quantity and value are displayed in the “Initial situation” column.

Ø  For statistical purposes, the system also calculates the moving average price for materials that are valuated at the standard price. This means that you can spot major differences between the current procurement price and the standard price and react accordingly. 

Ø  The system calculates the total stock value of materials with standard price control as follows:

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

Step2:

Ø   The system updates the stock value and the stock quantity with the standard price.

Ø  It updates the GR/IR clearing account with the purchase order price.

Ø   It posts the difference between the purchase order price and the standard price to the price difference account.

Step3:

Ø  The system clears the GR/IR clearing account with the purchase order price.

Ø  It updates the vendor account with the invoice price.

Ø  It posts the difference between the purchase order price and the invoice price to the “income from price differences” account. It does not change the total stock value.

  

Step1:

Ø  The initial stock quantity and value are displayed in the “Initial situation” row. 

Step2:

Ø  The system updates the stock value, stock account, and GR/IR clearing account with the purchase order price.

Ø  It recalculates the moving average price on the basis of the new stock value.

Ø  Moving average price (per base unit of measure) = total value / total stock 

Step3:

Ø  The system clears the GR/IR clearing account with the purchase order price and updates the vendor account with the invoice price. It posts the difference between the purchase order price and the invoice price to the stock account and recalculates the stock value based on the invoice price.

Ø  The system redetermines the moving average price based on the new stock value.

Ø  If the stock quantity is less than the invoice quantity, the system posts part of the difference to the “Expenditure/income from price differences” account instead of the stock account.