SAP- Inventory Valuation

Mubeen Subhedar

Prepared by Mubeen Subhedar

 Inventory Valuation:-

Whenever we do any Goods movement (Goods receipt or Goods Issue) for valuated material, the
total value of stock gets changed. This value is getting updated in Financial account (GL). This
process is called as Inventory valuation.

Inventory valuation in SAP System is carried out with two pricing methods.

1. Moving Average Price (V).

2. Standard Price (S).

Valuation Area:-

Valuation area is the organizational level at which materials are valuated such as at
the plant level or company code level.

SAP recommends that we valuate material at plant level.

The valuation area is fundamental setting and is very difficult to reverse after it’s been selected.

Follow below path to define valuation area-

SPRO IMG Enterprise structure Definition Logistic General Define Valuation level.

Or Use T-code OX14.

Let’s discuss on Moving average price and standard price.

1|P age
 1. Moving average price :-
Moving average price is weighted average price of material and will change regularly if PO
prices of material are changed regularly.

Moving Average price Total stock value Total stock quantity.

Let’s take an example,

Material 10050.
Initial Stock

PO has been raised for material 10050 (Price method V) for quantity 100 with price 10 Rs. Goods
receipt done for 100 quantities.

So Total Stock value will be 1000 and Total stock quantity will be 100.

Let’s put this value in our equation,

Moving Average price Total stock value Total stock quantity.

1000 100

MAP 10

Now again we raise new PO for material 10050(Price method V) for quantity 100 but now with
price Rs. Goods receipt also done for 100 quantities.

So the moving Average price will be,

Moving Average price Total stock value Total stock quantity.

MAP 1800 (1000 Rs 800 Rs) 200 (100 +100)

MAP

Material master record will always be updated with current moving Average price.

You can check current moving average price for material in T-code MM03 (Accounting view).

2|P age
 2. Standard price :-
Standard price is fixed price which is maintained in Material master record. Normally we
used standard price for finished goods.
Standard price is always fixed and any difference between standard price and PO
price is posted in price difference account.

Let’s take an example,

Material 10050.
Initial Stock 100
Standard Price Rs.

PO has been raised for material 10050 (Price method S) for quantity 100 with PO price 10 Rs.
Goods receipt also done for 100 quantities.

Now in this case, stock GL will hit with 800 Rs as material is valuate with standard price and it is Rs
8.

GR/IR account will hit with Rs 1000 as it is based on PO and GR and not standard price.

There is difference of Rs 200 which will post in to price difference account.

Stock GR/IR Vendor Price

Account Account Account difference
account
GR +800 -1000 +200
IR +1000 -1000

3|P age
Configuration Steps:-

Standard price and Moving average price both are predefined in SAP System. While creating
Material master, we must assign valuation method for material.

We can assign price control to material type as well, whenever we create material, the price control
will automatically assign to material.

To do so please follow below path SPRO SAP IMG Logistic General Material master
Basic Settings Material types Define attributes of material types.

Or use T-code OMS2

The system will propose the price control for material which is selected in price control option for
material type. It is only proposal from system and we can change it at the time of material
creation.

We can make particular price control mandatory by selecting price ctrl mandatory checkbox. If we
select this option then we cannot change it in material master.

4|P age
 Split Valuation

SAP allows material to be valuated at plant level or company code level. This allows
valuating material with different cost based on procurement or manufacturing cost at plant
level.

There may be situation when there is need to valuate material differently within plant as well. For
example, when same material is produced in house as well as procured from outside. An externally
procured material obviously have different price than in house production. The organization might
also want to track these two stock differently so to have better visibility.

To achieve this we used Split valuation. Split valuation allows you to valuate sub stock. There are
number of reasons you might want to valuate sub stocks separately.

The material has different origins.

External procurement/ Internal procurement(Production)
Categories of quality.

Split valuation introduces two important concepts- Valuation category and valuation types.

Valuation category is criteria to valuate sub stock while valuation types are characteristics of sub
stocks.

Flow Charts:-

Activate Split Valuation.

Create Valuation Types.

Create Valuation categories.

Activate valuation type for valuation

categories.

Activate valuation area for valuation

categories.

5|P age
Configuration Steps:-

For configuration of Split valuation, Please follow below path-

SPRO SAP Ref IMG Material Management Valuation and account assignment Split
valuation.

1. Activate split valuation (T-code OMW0)-

2. Configure split valuation (T-code- OMWC)-

2.1 First Click on Global types.

Click on Create to create new valuation types

6|P age
Enter valuation type.
Ext. Purchase Orders This indicates wheather external POs are allowed.
Int. purchase orders This indicates wheather internal POs are allowed.
Acct cat. Reference This is used to group valuation classes.
Click on Create and save.

2.2 Click on global categories.

Click on create to create new valuation category.

7|P age
Enter valuation category code and description.
Default:ext. procure. Valuation type entered in this field will propose at the time of PO.
Ext.procurement mand If we select this checkbox, default valuation type is mandatory and
can’t be changed in PO.
Default: in-house Valuation type entered in this field will propose at the time of
production order creation.
In-house prod. mand. If we select this checkbox, default valuation type is mandatory and
can’t be changed in production order.

2.3 Activate valuation type for valuation category.

Select your valuation type for valuation category and click on Activate.

8|P age
2.4 Activate valuation Area for valuation category.

Click on Cat. OUs.

Select your valuation area (plant) and click on activate.

9|P age
Process Steps :-

1. Create Material and assign valuation category to material in Accounting view –T-code
MM01.
2. Extend Material for valuation types T-code MM02.
3. Create PO. In delivery tab, default valuation type will be proposed. Select appropriate
valuation type. T-code ME21N.
4. Post goods receipt MIGO
5. Check valuation of material at plant level as well as valuation type level. T-code MM03.

Thank you.

10 | P a g e