standard price v.s. moving average price(MAP)

Standard vs Moving Average Price

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.

 

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STANDARD PRICE

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.

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Standard Price and Moving Average Price

The price control procedure set in the material master record determines the value used to valuate the goods receipt of a material. Material valuation can be carried out according to the standard price (S price) or the moving average price (V price).

Standard price

 
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.

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

Moving average price

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 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.