Example: Multilevel Price Determination

Example 5:

In Period 1, 100 chocolate bars were produced from 10 kilograms of cocoa and 10 liters of milk . The resulting price and exchange rate differences of the raw materials are allocated to the finished product on a pro rata basis. See also: Example: Price and Exchange Rate Differences

Production order for 100 chocolate bars of production version 1:

		Plan		Actual
		Quantity	Price / Activity price	Quantity	Price / Activity price
BOM	Cocoa	10 kg	MXN 200	10 kg	MXN 200
BOM	Milk	10 liters	MXN 600	10 liters	MXN 600
Routing	Setup (MXN 50/hr)	1 hour	MXN 50	2 hours	MXN 100
Routing	Production (MXN 50/hr)	3 hours	MXN 150	5 hours	MXN 250
	Total		MXN 1000		MXN 1150

Single-Level Price Determination

Single-Level Price Determination: Cocoa

The prices for the cocoa and the milk are determined by means of single-level price determination.

Material price analysis for the material cocoa in period 1 after single-level price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	10 kg	MXN 200	0	0	MXN 20
Receipts	20 kg	MXN 400	MXN 42	MXN 42	MXN 24.2
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	30 kg	MXN 600	MXN 42	MXN 42	MXN 22.8
Consumption N ot allocated Production Chocolate Goods issue	10 kg 0 10 kg10 kg10 kg	MXN 200 0 MXN 200MXN 200MXN 200	MXN 14 MXN 14 000	MXN 14 MXN 14 000	MXN 22.8 0 MXN 20MXN 20MXN 20
Ending inventory	20 kg	MXN 400	MXN 28	MXN 28	MXN 22.8

See also: Example: Goods Issue

Example: Single-Level Price Determination

Price differences are assigned to consumption through material price determination. If these differences are not used in multilevel price determination, or if multilevel price determination has not yet taken place, these price differences appear in material price analysis under Consumption/not allocated .

Single-Level Price Determination: Milk

The material milk has only price differences resulting from two different procurements. No exchange rate differences arise. Milk is procured only from local producers (and therefore not in a foreign currency).

Material price analysis for the material milk in period 1 after single-level price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	0 liter	0	0	0	60 MXN
Receipts Goods receipt 1 Goods receipt 2	20 liters20 liters	MXN 1200MXN 1200	MXN 100MXN 140	00	MXN 65MXN 67
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	40 liters	MXN 2400	MXN 240	0	MXN 66
Consumption Not allocated Production Chocolate Goods issue	10 liters 0 10 liters10 liters10 liters	MXN 600 0 MXN 600MXN 600MXN 600	MXN 60 MXN 60 000	0 0 000	MXN 66 0 MXN 60MXN 60MXN 60
Ending inventory	30 liters	MXN 1800	MXN 180	0	MXN 66

Material price analysis for the finished product chocolate in period 1 after single-level price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	0 bars	0	0	0	MXN 10
ReceiptsProductionOrder settlementGoods receipt	100 bars 100 bars 0 100 bars	MXN 1000 MXN 1000 0 MXN 1000	MXN 150 MXN 150 MXN 150 0	0 0 0 0	MXN 11.5 MXN 11.5 0 MXN 10
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	100 bars	MXN 1000	MXN 150	0	MXN 11.5
Consumption
Ending inventory	100 bars	MXN 1000	MXN 150	0	MXN 11.5

Multilevel Price Determination

The price and exchange rate differences from single-level material price determination of both raw materials appear in material price analysis of the finished product chocolate in the column receipts. There you see the documents from the lower levels. As with single-level price determination, the price and exchange rate differences from milk and cocoa are proportionally allocated to consumption and ending inventory after multilevel material price determination.

Material price analysis for the material cocoa in period 1 after multilevel price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	10 kg	MXN 200	0	0	MXN 20
Receipts	20 kg	MXN 400	MXN 42	MXN 42	MXN 24.2
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	30 kg	MXN 600	MXN 42	MXN 42	MXN 22.8
Consumption Production Chocolate Multilevel price determination Goods issue	10 kg10 kg10 kg 0 10kg	MXN 200MXN 200MXN 200 0 MXN 200	MXN 14MXN 14MXN 14 MXN 14 0	MXN 14MXN 14MXN 14 MXN 14 0	MXN 22.8MXN 22.8MXN 22.8 0 MXN 20
Ending inventory	20 kg	MXN 400	MXN 28	MXN 28	MXN 22.8

Material price analysis for the material milk in period 1 after multilevel price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	0 liters	0	0	0	MXN 60
Receipts Goods receipt 1 Goods receipt 2	20 liters20 liters	MXN 1200MXN 1200	MXN 100MXN 140	00	MXN 65MXN 67
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	40 liters	MXN 2400	MXN 240	0	MXN 66
ConsumptionProduction Chocolate Multilevel price determ. Goods issue	10 liters10 liters10 liters 0 10 liters	MXN 600MXN 600MXN 600 0 MXN 600	MXN 60MXN 60MXN 60 MXN 60 0	000 0 0	MXN 66MXN 60MXN 60 0 MXN 60
Ending inventory	30 liters	MXN 1800	MXN 180	0	MXN 66

Material price analysis for the material chocolate in period 1 after multilevel price determination:

	Quantity	Preliminary valuation	Price differences	Exchange rate differences	Price
Beginning inventory	0 bars	0	0	0	MXN 10
Receipts Production Multilevel price determination Order settlement Goods receipt	100 bars100 bars 0 0100 bars	MXN 1000MXN 1000 0 0MXN 1000	MXN 224MXN 224MXN 74 MXN 1500	MXN 14MXN 14MXN 74 00	MXN 12.4MXN 12.4 0 0MXN 10
Other inward/outward movements	0	0	0	0	0
Cumulated inventory	100 bars	MXN 1000	MXN 224	MXN 14	MXN 12.4
Consumption
Ending inventory	100 bars	MXN 1000	MXN 224	MXN 14	MXN 12.4

Closing Entries with Revaluation of Materials

Note: In this example, it is assumed that the closing entry of the material cocoa in the first period is not made until now with the closing entries for multilevel price determination.

Closing entries for

Single-level price determination of the material cocoa (see also: Example: Closing Entries ) 6

Single-level price determination of the material milk 8
Single-level price determination of chocolate 9

Multilevel price determination of chocolate 10 and final revaluation in Period 1 11

Credit to inventory (only shown for the example for chocolate) in Period 2 12

No.	P*	Inventory		Price differences cocoa		Price differences milk		Price differences chocolate		Exchange rate differences cocoa		Exchange rate differences chocolate	Price differences of lower level		Exchange rate differences of lower level
23000 6 8 9 10 11	1	150 88		2022	28 14	100140	180 60	150	150	42	28 14		74	74	14	14
12	2		238					224				14

* Period