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1. Material Ledger + Actual Costing (PUP)

1.1 - Periodic Unit Price - During the Period

During the period all transactions are valued at standard cost as a preliminary valuation SAP collects all valuation relevant transaction data in the material ledger for a period

Price Differences

Exchange rate differences

Production variances Differences from the preliminary valuation price are posted to price difference accounts 1.2 - Periodic Unit Price - Month end : Single level Price determination

SAP calculates the PUP based on the sum of the price differences, exchange rate differences and production variances in relation to the cumulative inventory quantity and value Weighted average cost is used to determine PUP PUP updated in Material Master (statistical) No variances are rolled to the next production level 1.3 - Periodic Unit Price - Month end : Single level Price determination

Only movements collected in the material Ledger for receipts and other inward/outward movements will effect the PUP Consumption has no effect on the price 1.4 - Periodic Unit Price - Month end : Multi level Price determination

An actual quantity structure (BOM) is created for all materials within a plant based on goods movements Variances associated with consumption of lower level materials are rolled up to the higher levels of this actual structure 2. Scenario

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2.1 - Receipt and invoicing of raw material Finished Product FP01 created from single Raw Material RM01.

Price variances on receipt of invoice for RM01. Production Order utilises half of RM01 stock and incurs lot size variances. All FP01 sold in period. RM01 Std @ $10/ton FP01 Std @ $20/ton

2.2 - Production Order costing and settlement

RM01 Std @ $10/ton FP01 Std @ $20/ton

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2.3 - Sale of finished material

RM01 Std @ $10/ton FP01 Std @ $20/ton

2.4 - PuP calculation and posting

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2.5 - Periodic Valuation

RM01 Std @ $10/ton PUP @ $15/ton FP01 Std @ $20/ton PUP @ $30/ton Sales @ $40/ton

3. Analysis

Standard Price Moving Average

Features All inventory postings are carried out at

the standard price Goods receipts are posted at the

goods receipt value.

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Variances are posted to price difference accounts

Price changes can be monitored

Material price reflect the actual price incurred

Price differences do not occur except in rare circumstances

Pros

Ensures consistent cost management of the production process and makes variances within production transparent

Can be used as benchmark to compare the contribution margins of a material in different market segments in Profitability Analysis

Variances occurring both for materials produced in-house as well as materials procured externally cause an update in the material price and the material stock value

Cons

Does not reflect the actual costs incurred during the period. This can lead to inexact valuation prices for materials whose procurement prices change a great deal over a period, or whose method of production changes within a period.

This problem increases in multilevel production with each new production step. This means that the costs for the finished product may not reflect the most recent data.

The material stock value does not reflect the current procurement costs, as variances from the standard price are collected in a price difference account in Financial Accounting and do not lead to a correction of the material stock account. The variances collected in the price difference account can no longer be assigned to the individual material.

Price used to valuate a material consumption is almost completely dependent on the time at which the goods issue is posted in the system

No consistent cost management of production process. The effect of changes in the production process, for example, are not recognizable in the finished product, and comparing results from different areas in Profitability Analysis is not really meaningful due to lack of a benchmark

Any mistake entering data can cause immediate and unwanted changes in the material price. Any goods issues posted following this error will be valuated immediately with this incorrect material price