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Purpose of Actual Costing/Material Ledger

Objectives

The application component Actual Costing/Material Ledger fulfills two basic objectives: the ability to manage material prices in multiple currencies/valuations, and actual costing.

Multiple Currencies/Valuations

A fundamental task of the material ledger is managing inventories in multiple currencies and/or valuations.

Material inventory values are normally managed by the system in only one currency (company code currency). The material ledger enables the system to manage inventory values in two additional currencies/valuations. This is achieved by updating all goods movements in the material ledger in up to three currencies or valuations. Currency amounts are translated into foreign currencies at historical exchange rates directly at the time of posting. Businesses in high-inflation countries can therefore manage their inventories in a more stable currency (such as US dollars). This reveals inflationary effects on inventory values.

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If you use transfer prices to represent value flows in your company in different valuation views, you need the material ledger. It allows you to manage your inventories in three different valuations: legal valuation, valuation for reporting purposes, and profit center valuation.

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Before activating the Material Ledger, make sure you know which currencies/valuations you want to use, as you cannot go back and change the setting later.

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Note that the activation of the material ledger is a prerequisite for using multiple valuations.

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Exchange rate differences arise if currencies are subject to exchange rate fluctuations between goods receipt and invoice receipt. The system posts the exchange rate differences to the relevant material inventory account at the end of the period as part of actual costing (standard posting logic), or manages the exchange rate differences separately from the inventory account as not relevant to inventory (alternative posting logic).

For more information about exchange rate differences and posting logic, see Alternative Posting Logic: Posting Exchange Rate Differences

Actual Costing

Actual costing expands upon the functions of the application components with the purpose of determining actual costs for externally procured materials and materials produced in-house. In addition, actual costing uses actual costs to valuate inventories of raw materials, semifinished products, and finished products.

Actual costing calculates an actual price (periodic unit price) for each material, into which all actual costs for the particular period flow.

Concept Behind Actual Costing

Actual costing valuates all goods movements within a period at the standard price (preliminary valuation). At the same time, all price and exchange rate differences for the material are collected in the material ledger.

At the end of the period, an actual price is calculated for each material based on the actual costs of the period. The actual price that is calculated is called the periodic unit price and can be used to revaluate the inventory for the period to be closed. In addition, you can use this actual price as the standard price for the next period. For more information, see Price Changes

Actual costing determines what portion of the variance is to be debited to the next-highest level using material consumption. The actual BOM enables variances to be rolled up over multiple production levels all the way to the finished product. Additionally, you can choose to have variances from cost centers and business processes also taken into account.

Subsequent allocation of the cost variances to the particular cost object (production order) is not possible. This is to ensure consistent cost management within a production area.

The actual costing further determines what portion of the variance is to be assigned to internal material consumption and sales. This portion can be subsequently debited to the consumption account to which material consumption has been posted (revaluation of consumption). In the case of a sale, the cost of sales can be revaluated to actual. In addition to the consumption account, the CO account assignment object (such as the cost center) to which the material consumption has been posted, can be revaluated.

Work in Process (WIP) can also be included in Actual Costing. If material consumption (or activity confirmations) have been posted for production orders that have only been partially delivered in the settlement period (or even not delivered at all), this consumption in the actual quantity structure is partly (or wholly) assigned to the work in process. The variances for the material consumption (or activity confirmations) assigned to the work in process can be subsequently debited to the WIP accounts (WIP revaluation). This means that the work in process can be revaluated at the actual costs of the components and activities.

If the work in process is canceled in the following periods by the final delivery of the production orders, the variances subsequently debited to the WIP accounts can be allocated to the products.

Valuating the material stocks with the periodic unit price provides a method of valuation using actual costs while avoiding problems associated with using the moving average price for the material valuation. For more information, see Price Control with and Without the Material Ledger . Preliminary valuation of goods movements using the standard price makes a consistent and reliable cost management of your production process possible, while making variances within production transparent. Actual Costing therefore combines the advantages of price control using the standard price with the advantages of the moving average price. The period dependency of the actual price supports periodic cost management.

Revaluating inventories at the end of the period with the periodic unit price is optional. Therefore, the functions of actual costing can be used not only to calculate actual costs, but are also useful for information purposes in conjunction with other cost accounting systems. The Actual Costing/Material Ledger component therefore does not just collect and calculate actual costs, it also tracks variances against the standard costs.

Due to the ability of actual costing to roll up costs and perform final costing at actual costs, it is particularly interesting for businesses that use a large number of raw materials with production processes that have multiple levels. Businesses that have high inventory levels and are interested in analyzing their inventory and consumption cost variances more closely can also use the functions provided by actual costing.

By calculating actual prices for materials, actual costing can aid you in making decisions such as whether to make or buy. Because data in actual costing is updated at the level of the procurement alternatives, it is possible to compare different sources of supply.

Activation Options

If you want to use the Actual Costing/Material Ledger component to manage material inventory values in multiple currencies/valuations, you must activate the material ledger. In addition, you can choose transaction-based price determination ( Price Determination indicator in the material master record = 2). For more information, see Transaction-Based Material Price Determination . If you do this, you still have the option of deciding between standard price and moving average price as the price control for your materials. Note the recommendations fromSAPregarding this under Price Control with and Without the Material Ledger

If you want the system to calculate a periodic unit price for your materials based on the actual costs incurred in a period, you need to activate actual costing in addition to activating the material ledger. In addition, you must choose single-level/multilevel price determination for your materials ( Price Determination indicator in material master record = 3). In this case, you must use price control standard price for all materials that you want to use in actual costing. For further information, see the following:

Single-Level Material Price Determination

Multilevel Price Determination

Periodic Material Valuation

Periodic Actual Costing

If you want to include variances from cost centers and business processes in addition to the material cost variances in Actual Costing, you need to activate activity consumption update in the quantity structure in addition to activating Actual Costing.

Constraints

The Actual Costing/Material Ledger component cannot be used with theSAPIndustry Business Solution SAP Retail

Actual Costing/Material Ledger Is Active

The Material Ledger Is Active

If you have activated the material ledger in a plant, you can update valuated goods movements in multiple currencies and valuations.

For more information, see Multiple Currencies and Valuations for Materials .

When you have activated the material ledger, you can choose between the following options for material price determination:

Transaction-Based Material Price Determination

For more information, see Transaction-Based Material Price Determination .

Periodic material price determination

If you want to determine material prices by period, you can choose between the following options:

Single-level material price determination

Multilevel material price determination

For additional information about single-level price determination, see the following:

Periodic Material Valuation

Periodic Actual Costing

For more information about the multilevel price determination, see: Periodic Actual Costing .

For more information, see Price Control and Material Price Determination .

Prerequisites for Periodic Material Price Determination

If you want to perform single-level material price determination for a material, make sure that the following prerequisites are fulfilled:

The material ledger is active for that material.

The price control indicator in the master record of the relevant material is set to S.

The price determination indicator in the master record of the relevant material is set to 3.

If you want to perform multilevel material price determination, make sure that actual costing is active.

Constraints

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The material ledger only supports active ingredient management for transaction-based material price determination.

See also

For additional information, see Actual Costing/Material Ledger