Standard price & moving average price in SAP

1. Standard price & moving average price in SAP

In the SAP System, there are two types of price control:
 Standard price
 Moving average price
These two types of price control differ in how they handle price variances resulting
from goods receipts or invoice receipts.

You determine the price control that should be used for a material when you create the
material and enter the accounting data for it. You enter one of the following indicators
in the Price control field to determine how the price is controlled:
 S for standard price control
 V for moving average price control

1.Standard Price:
Price determination on the price set by organization based on historical/ assume value
which will be considered as standard price for that material.

During the valuation using the standard price (price control .S.), there are many stock
postings to a price determined in the material master record, the standard price.
Variances to this standard price are posted to the price differences accounts.

For statistical purposes, the system also calculates the moving average price for
materials that are valuated at standard price in the material master record.
Md. Shalehur Rahman Samy
Associate Consultant, SAP MM
IPE, Shahjalal University of Science & Technology.

Mobile : [phone]
Email : [email protected]

2. The system calculates the total stock value for materials with standard price control
as follows:
Total value = standard price (per base unit of measure) * total stock
Valuation using a standard price has the following features:
 All inventory postings are carried out at the standard price
 Variances are posted to price difference accounts
 Variances are updated
 Price changes can be monitored
If a material is assigned a standard price (S), the value of the material is always
calculated at this price. If goods movements or invoice receipts contain a price that
differs from the standard price, the differences are posted to a price difference account.
The variance is not taken into account in valuation.

Example:
Total quantity Total value
Opening stock 1000 PC 5000 BDT
(standard price = 5 BDT)

Purchase 1000 PC 5000 BDT
(Purchase price = 4BDT)
Total 2000 PC 10000 BDT

#Price variance G/L =1000 BDT


2.Moving Average Price:
Price determining on the basis of averaging the total value of the stock by distributing
cost over stock.

In valuation using the moving average price (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 moving average price for every goods

3. movement as follows:
Moving average price = total stock value / total stock quantity.

Any differences from the purchase order price that occur during the invoice receipt are
posted directly to the stock account during stock coverage, and the system determines
a new moving average price.

Valuation using a moving average price results in the following:
 Goods receipts are posted at the goods receipt value.
 The price in the material master is adjusted to the delivered price.
 Price differences occur only in exceptional circumstances.
 Manual price changes are usually unnecessary. However, they are possible.
If a material is assigned a moving average price (MAP), the price is automatically
adjusted in the material master record when price variances occur. If goods movements
or invoice receipts are posted using a price that differs from the moving average price,
the differences are posted to the stock account; as a result, the moving average price
and the value of the stock change.
Example:
Total quantity Total value
Opening stock 1000 PC 5000 BDT
(Average price = 5 BDT)

Purchase 1000 PC 4000 BDT
(Purchase price = 4BDT)
Total 2000 PC 9000 BDT
Average price = 9000/2000 = 4.5 BDT

1.What is difference between standard price and moving average price? When
and how to use it?
Standard price are used for products that do not fluctuated frequently. It is usually
used for finished or semi-finished products.

4. Moving average price are used mainly for raw materials that are purchased
externally. The advantage of using moving average price for your raw materials is that
your inventory costs will always reflect the current market cost.
SAP strongly recommends that you do not select price control V for semi-finished
products and finished products, because doing so will very easily cause the
calculation of unrealistic valuation prices. SAP recommends:
Price control V for raw materials and trading goods; price control S for semi-finished
products and products.
If you nevertheless select price control V, take care in the following situations:
1. Unrealistic prices occur if materials are produced and also retire during one period
(that is, the inventory at the end of the period is smaller than the total of acquisitions
from production orders) and if, in addition, several production orders belonging to a
material were finished in this period, and the production order settlement calculates
variances at the end of the period. Every single production order carries out an
inventory coverage check and may therefore cause the moving average price to be
changed. However, the individual production orders do not check whether the
inventory available at the end of the period has already been debited by another
production order.
Example: On 20 workdays in the period, 1 piece of material xyz was produced for
each day and delivered to the warehouse at a price of USD 1000. At the end of the
period there is 1 piece at the warehouse. Since an activity price of a participating cost
center was higher than planned, every single production order calculates cost of goods
manufactured of USD 1100 during the settlement. Every single one carries out a
inventory coverage check and finds out that the variance can be posted completely to
the inventory. That is, the ending inventory of one piece is debited with USD 20 x 100
and it consequently receives a price of USD 3000.
1. A settlement is carried out although not all costs have yet been posted to the
order. This can even result in a price of 0 for the delivered product.
2. No period check of the costs is carried out on the order, that is, costs from
previous periods may be settled.
3. Settling orders is already possible in the 'Delivery completed' status.
Solution:
Standard price for products together with possible manual price changes.
If you are required to valuate semi-finished and finished products with actual prices

5. that correspond to the costs of the actual production, SAP recommends you use the
function of the material ledger for this. Here, a periodic actual price is created that is
calculated on a much more reliable basis than the moving average price. A so-called
price limited quantity is used which makes sure that in the above example price
differences are proportionally taken into account (95% of the total price differences)
when valuating the 19 pieces withdrawn from material xyz which results in a periodic
actual price of 1100 USD. In addition, it is possible as of Release 4.5 to even take into
account the variances of the actual prices of the raw materials in the valuation of the
semi-finished and finished products that are manufactured from it.


Q2.If we select standard price for any type of material or moving
average price and then make po, it will pick from material master or
what?
The Purchase Info Record have the FIRST priority. When no PO info record is found,
the Purchase Order will pick the user LAST enter price. The PO module do not pick
up any price from material master.