SAP MM Material Valuation

This tutorial talks about SAP Material Valuation. You will learn about the concept of material
valuation in SAP MM We will talk about valuation levels and valuation methods. Explain the
difference between standard and moving average prices as well as introduce the functionality of
split valuation. We will provide step-by-step explanation and screenshots illustrating these
processes.

SAP valuation area is the organizational level at which materials are valuated such as at the
plant or company code level. When the valuation area is at the plant level, you can valuate a
material in different plants at different prices. When the valuation is at the company code level,
the valuation price of a material is the same in all of the plants of the company code.

Material valuation at the plant level is mandatory if your system is a retail system, or if you want
to use either the Production Planning or Product Cost Accounting components.

SAP Valuation Area at Company Code and Plant Levels

To define the valuation area at the company code or plant level you should access the path
below in SPRO transaction:

Enterprise Structure -> Definition -> Logistic General -> Define Valuation Level

Depending on your requirements, set the valuation level at a company code or at a plant.
 Define the Valuation Area Level

Once you’ve defined the valuation area, it is very difficult to change it afterwards because this is
the fundamental setting.

SAP Valuation Methods

Material valuation is carried out according to the price controls set in the SAP system. Based on
the business scenarios, we can set the valuation method as moving average price (price
control V) or standard price (price control S).

The valuation method is defined in the Accounting 1 view screen of the material master. You
can check in this view the total stock quantity and total value of a material.
SAP Valuation Methods in Material (Transaction MM02)

A standard price is a fixed price defined in the material master record. In general, this method
is used for finished goods. In the standard price procedure, the valuation price is defined and
fixed in the material master record. If price in a purchase order (PO) is different (either more or
less) from the standard price, the difference amounts are posted to a price difference account.

On the other hand, moving average price is a weighted average price. The movements of
materials such as goods issue or goods receipts may impact moving average prices. The
moving average price will change if purchasing prices of a material are changed. This price is
calculated as shown below:

Moving average price = Total stock value / Total stock quantity

The material master record will always be updated with the current moving average price.

Moving average and standard price comes under the category of price control .When u
create a material using MM01 t code then there exists a accounting view in that section
there is a field called price control . Generally price control is classified into two depending
upon the requirement. “V” and “S” former one is moving average and latter one is standard
price. Moving average price means every time a new lot of stock is added to the old stock ,
the value of total stock would be revaluated based on the value of old stock and new one .

Standard price means that inventory of the material is being evaluated at a fixed price for
the given period , irrespective of new stock being added.

Standard price usually used for finished or semi-finished material.

Moving average price is used mainly for Raw Materials and External Purchases.
The Price of externally procured materials varies based on Market, will reflect
the current market cost.

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.

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.

Standard price

System calculates the total stock value for materials with standard price control as
follows
Total value = Standard price * total stock

Moving average price

System automatically calculates the moving average price for every goods movement
as follows
Moving average price = total stock value / total stock quantity

Configuration

You must assign the valuation method in the Accounting 1 view while creating material master
records. But to reduce the time, you can assign the price control to the material types, so that
the price control will be set automatically by the system later on for new materials. To do that,
access the path below in SPRO transaction:

Logistic General -> Material Master -> Basic Settings -> Material Types -> Define attributes of
material types
Assign Default Valuation Method to a Material Type

Material Price Changes

Material prices can be changed over a period of time due to changes in the market price. The
SAP system includes functionality to accommodate these changes, and the stock valuation is
revaluated as per the current market price.

Valuation prices can be changed based on business requirement for three scenarios:

 A price change during the current posting period

 A price change during the previous posting period and changes are not carried over to the
current period
 A price change during the previous posting period or year and changes are carried over to
the current period
Note that changing the material price doesn’t involve changing the material master record. It is
an accounting transaction in which the total stock for a valuation area is revaluated. The
transaction code MR21 is used to change prices. After the prices are changed, accounting
documents are generated and the stock account, expense/revenue accounts will be involved.

SAP Split Valuation

Split valuation helps you to valuate sub-stocks (part of the total stock) of a material in different
ways. There are a number of reason you might want to valuate sub-stocks separately, such as:

 The material has different origins (e.g., materials have different country of origin)
 The material is acquired via different types of procurement (e.g., external procurement or
internal procurement)
 The material has different categories of quality (e.g., damaged, poor quality or good quality)

SAP Split Valuation Types

Note that split valuation in SAP is used only with the moving average price control, and
materials that are subject to split valuation can be valuated only via moving average price
method.
 SAP Split Valuation Example

To activate the split valuation in the system, you must follow this path in SPRO transaction:

Material Management -> Valuation and Account Assignment -> Split Valuation -> Activate Split
Valuation

Activate Split Valuation in SAP

To configure the split valuation in the SAP system, you must follow this path
in SPRO transaction:

Material Management -> Valuation and Account Assignment -> Split Valuation -> Configure
Split Valuation
Choose Global Types button to create new valuation types and define their attributes.

Defi
ne Valuation Types

 Ext. POs: This field indicates whether external POs are allowed or not.
 Int. POs: This field indicated whether internal POs are allowed or not.
 ARef (Account Category Reference): This field is used to group valuation classes. Specify for
which account category reference this valuation type is allowed.

Choose Global Category button to create new valuation categories and define their attributes.
Define Valuation Category

 Default Valuation Type External Procure: The valuation type selected in this field is proposed
at the time of PO creation.
 Default Valuation Type External Procure Mandatory: The default valuation type is mandatory
and can’t be changed in the PO.
 Default Valuation Type In-House Production: The valuation type is proposed at the time of
production order creation.
 Default Valuation Type In-House Mandatory: The default valuation type is mandatory and
can’t be changed in the Production Order.
 Determine Valuation Type Automat: The system will automatically determine the valuation
type at the time of goods receipt. This indicator is only useful for materials that are managed
in batches. A valuation record is automatically created for each batch.

Click on button to activate valuation types for the valuation category.

 Alloca
te Valuation Types for Valuation Category
You can check the valuation type and valuation price in the Accounting 1 view of the material
master by using the transaction MM03. If you select a valuation type at the organizational level,
the system will display the stock valuation for the selected valuation type.
Split Valuation Price in Material Master