Example: Price and Exchange Rate Differences

Example 1

With the material price analysis, you can interpret how price and exchange rate differences arise under the category Receipts.

1 Initial inventory

In Period 1, there is a beginning inventory of 10kg of the raw material cocoa in the warehouse that is valuated with the standard price of 20 Mexican pesos (Mxn).

2 Goods Receipt

In the same period, a purchase order is placed for 20kg of cocoa in the foreign currency US dollars (USD).

The goods receipt of 20 kg of cocoa takes place at a price of 2.1 USD with an exchange rate of 1USD: 10 Mxn. 20 kg of cocoa costs 42 USD or 420 Mxn. 400 Mxn are posted to the material stock account and 20 Mxn to the price difference account.

3 Invoice Receipt

At invoice receipt a kilogram of cocoa costs 2.2 USD.

The increase in the price of cocoa causes price differences to arise, and fluctuations in the exchange rate (at invoice receipt 1USD is 11 Mxn) cause exchange rate differences to arise. At invoice receipt 20 kg of cocoa costs 44 USD or 484 Mxn. At invoice receipt 22 Mxn are posted to the price difference account and 42 Mxn are posted to the exchange rate difference account.

In the material price analysis, the following values are displayed for Period 1.

 Quantity Preliminary valuation Price differences Exchange rate differences Price 1 Initial inventory 10 kg 200 Mxn 0 0 20 Mxn Receipts Procurement 2 Goods receipt 3 Invoice receipt 20 kg20 kg20 kg0 400 Mxn400 Mxn400 Mxn0 42 Mxn42 Mxn20 Mxn22 Mxn 42 Mxn42 Mxn042 Mxn 24.2 Mxn24.2 Mxn21 Mxn0 Other inward/outward movements 0 0 0 0 0 Cumulated inventory 30 kg 600 Mxn 42 Mxn 42 Mxn 22.8 Mxn Consumption 0 0 0 0 0 Ending inventory 30 kg 600 Mxn

*The price is calculated as follows:

(Preliminary valuation + price differences + exchange rate differences)/ quantity = price

Postings:

Postings are made to the following accounts:

 No. Periods Inventory Price differences Exchange rate differences GR/IR clearing account Vendor account 123 1 200400 2022 42 420 420 484

• The gross invoice amount without tax is calculated as follows:
2.2 USD/kg
* 2.2 USD/kg = 44 USD
Translation is carried out through invoice verification at the current exchange rate:
44 USD * 11 Mxn/USD = 484 Mxn
• The price difference in the local currency Mxn at goods receipt is calculated with the exchange rate at the time of goods receipt:
Price difference at goods receipt = price at goods receipt * goods receipt quantity - standard price* goods receipt quantity
or
20 Mxn = 420 Mxn - 400 Mxn
or
(2.1 USD/kg *10 Mxn/USD-20 Mxn/kg) * 20 kg = 20 Mxn
• The exchange rate difference in local currency Mxn at invoice receipt is the difference between the valuation of the goods receipt with the old and new exchange rates:
42 USD * ( 11 Mxn/USD – 10 Mxn/USD) = 42 Mxn
• The price difference in local currency at the time of invoice receipt is the difference between the invoice amount and the total from the valuation of the goods receipt and the exchange rate:
Price difference at invoice receipt = price at invoice receipt - price at goods receipt - exchange rate difference
or
22 Mxn = 484 Mxn - 420 Mxn - 42 Mxn
The 22 Mxn is the price difference in purchase order currency, in this case USD, translated at the current exchange rate:
20 kg * 0.1 USD/kg * 11 Mxn/USD = 22 Mxn