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Standard vs Moving Average Price

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Standard vs Moving Average Price
Stechies

Generally all raw materials (ROH), spare parts (ERSA), traded goods (HAWA) etc. are assigned as moving average price (MAP) because of the accounting practice of accurately valuating the inventory of such materials. These materials are subject to the purchase price fluctuations on a regular basis.

Company generally use moving average on purchased materials with small cost fluctuations. It is most appropriate when the item is easily obtainable. The impact on margins are minimized which reduces the need for variance analysis. Furthermore, the administrative effort is low as there are no cost estimates to maintain. The cost reflects variances, which are closer to actual costs.

The semi-finished goods (HALB) and finished products (FERT) are valuated with standard price because of the product costing angle. If these were to be MAP controlled, then finished/semi-finished product valuation would fluctuate due to data entry errors during backflushing of material and labour, production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice.

Refer to OSS note 81682 - Pr.Contr.V for semi-finished and finished products.
SAP recommends that standard price to be used for FERT and HALB. If actual price is required for valuation, make used of the functions of material ledger where a periodic actual price is created which is more realistic.

e.g. how SAP calcualte the moving average price
Goods Receipt for Purchase Order
Balance on hand quantity + Goods Receipts quantity
Balance on hand value + Goods Receipts value
New Moving Average Price = Total Value / Total Quantity

Invoice Receipt for Purchase Order
Invoice price more than Purchase Order price

additional value add to Balance on hand value then divided by Balance on hand quantity
Invoice price less than Purchase Order price
difference is deducted from the Balance on hand value (up to 0). The rest of the amount will becomes price variance. This will result in Balance on hand value is zero while there are Balance on hand quantity. If the Balance on hand value is enough to deduct, then the remaining value will be divided by Balance on hand quantity.
When your Goods Issue price is constantly greater than your Goods Receipt price, it will result into zero value moving average price.
OSS note
185961 - Moving Average Price Calculation.
88320 - Strong variances when creating moving average price.

Never allow negative stocks for materials carried at the moving average.


Comments

  • 18 Jun 2006 4:51 am
    Dear Shailesh,

    Can you tell me the reasons for " Never allow negative stocks for materials carried at the moving average."

    We have a situation here whereby, while doing MIRO for one particular PO, we keep getting this error of negative value in MAP.

    We are thinking of removing the error to warning message.

    Please advise at adnanmalik@yahoo.com

    Thanks
  • 26 Jan 2018 7:29 pm

    Hi,

    I have one issue.

    My client has done GRN and MIRO long back, now he wants to post Entry tax for the same PO with 0.01 INR, the actual tax was 27790/-INR when he tries to post MIRO getting the error as "Moving average price for the material would be negative, xxx material code, 001 plant". Please help me.

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