SAP 4.

6C - Material Ledger
Conceptual Manual

1. SAP Valuation Methods without Material Ledger

2. Purpose & Design of Material Ledger

3. Fundamentals of Material Ledger

4. Periodic Unit Price Calculation

5. Material Ledger Fact Sheet

6. T-Accounting for Material Ledger Transactions

1. SAP Valuation Methods without Material Ledger
(A) Material Valuation depends on the price control set for materials in the material master.

• V or Moving Average Price Control – a new material price is calculated after every receipt.
The price is an average of calculated from the total inventory value and the total quantity of the material
currently in stock.
• S or Standard Price Control – the price remains constant for at least one period.
The standard price is the result of a cost estimate for that material.

V or Moving Average Price Control S or Standard Price Control

 Material price adjusts with every receipt.
 SAP recommends only for raw materials or externally sourced
materials.
 Real-time price fluctuations are posted to the stock.
 Price differences only occur in exceptional circumstances.
 False entries cause incorrect valuation and thereby can post incorrect
consumption costs to the P&L.
 Danger of incorrect valuations when the invoice receipt is delayed.
Constant material price for at least one period.
Recommended by SAP for all material types.
 All movements take place at standard price.
 Variances from standard price (cost estimate) are transparent…
Drawing organizational attention to controlling costs.
 Price differences can not be adjusted subsequently adjusted to the
ending inventories or the consumed products.

• Current Betz Blueprint: V or Moving Average Price Control for NAM & EUR for Raws (FG @ Std).
S or Standard Price Control for SAM & APA for both Raws & FG.
1. SAP Valuation Methods without Material Ledger
B) The accounting of variances differ between the two valuation methods.

• Moving Average Price Control (NAM & EUR Blueprint)

Raw Materials- no variances book outside of the inventory account except for 2 scenarios of stock shortage:
1) A GR/IR difference is posted for a purchase with a quantity greater than the current stock.
2) A GR/IR difference is posted when no inventory is on hand.
Finished Goods- held at standard cost and estimated every quarter by product costing. The FG std cost includes
the prior qtr’s MA price for direct materials (DM) & estimates for non-DM costs. The difference between the MA
price at which raw material is consumed & the DM price included in the FG’s std is booked to the Liquidations acct
in Hyperion. Variances from Std price for non-DM costs book to SAP P&L variance accts (& Hyp Variance Acct).

• Standard Price Control (SAM & APA Blueprint)

Raw Materials- any difference between the standard & actual price posts to a price variance account on the P&L.
Finished Goods- variances can occur for the 3 non-DM components of standard cost: Labor, Depr, & Overhead.
These variances can arise in the area of cost responsibility (cost centers) or in the area of production (variances
from cost objects such as production orders).

• Without Material Ledger, variances cannot be proportionally allocated to ending inventory

(assets) or consumption (period expense).
2. Purpose & Design of Material Ledger
•Purpose of Material Ledger
• The purpose of Material Ledger (ML) is to revalue the period’s ending inventory by
material from standard cost to actual cost.
• The Material Ledger component enables the R/3 System to carry inventory values in
two additional currencies/valuations.
• The actual costing by ML supplements the standard cost system. The values from the
standard cost system (cost centers, orders) are not changed by the revaluation.

•Design of Material Ledger

• Material Ledger is standard functionality in 4.6C that controls all material movements
in multiple currencies.
• To work with ML, all materials must be controlled using S or Standard Price Control.
• If ML is active in a Plant, all other Plants in the same Company code must have ML
active as well.
3. Fundamentals of Material Ledger-
Steps in Product CostingCosting Steps
Product
1 2 3
Actual Costing/
Product Cost Planning Cost Object Controlling
Material Ledger
Quantity Structure: Preliminary Valuation Quantity Structure:
PP Master Data Processing of Actuals Material Movements

BOM Routing •Planned Order

costs Material $
Internal $
•Actual OH $
Process
costs Process
Total ...
$

Final costing
Value structure Value structure
Period-end closing
Material prices Work in process Material movements
Activity prices Scrap variances
Process prices Variances
Overhead Settlement Material Ledger

Standard price Standard price Price diff. Material settlement:

actual price
Material Internal OH Process
3. Fundamentals of Material Ledger- ML Process
Material Ledger

FG
FG Production
Production Material Valuation with
V Multi-Level Actual Costing

Preliminary Valuation
V at Standard Cost
SF
SF Production
Production
V Revaluation to Actual V
Cost

Raw
Raw Material
Material V V Raw
Raw Material
Material
V V
3. Fundamentals of Material Ledger- ML Process
Material LedgerDefinition
•Actual Costing/Material Ledger uses the terms single-level and multilevel…
• Single-level always refers to an individual material and its procurement process. This means that all values and
quantities that arise during the procurement of the material are collected on the basis of that single material.

•Variances arise during the period against the standard price…

•Raw Materials- Variances caused by price fluctuations in external procurement.
•Semi/Finished Goods- Variances usually caused by internal cost fluctuations in production that are
determined when the order is settled.
• Multilevel is a material price determination setting that extrapolates variances that flowed into higher levels of the
production process. As a result, price differences (such as for raw materials) can be rolled up to finished products.

FG
FGProduction
Production Material Valuation with
Multi-Level Actual Costing
V
V

Preliminary Valuation
V
V at Standard Cost This example demonstrates
SF
SFProduction
Production current ML Blueprint in Betz
Revaluation to Actual
V
V
Cost V
V using multilevel material
price determination.
Raw
RawMaterial
Material V
V V
V Raw
RawMaterial
Material

V
V V
V
4. Periodic Unit Price Calculation - Concept
• Essential to understanding Material Ledger is the calculation of the Periodic Unit Price.
There are four aspects of this concept that must be well understood:
1) All goods movements within a period are valuated preliminarily at the standard price.
2) All price and exchange rate differences for the material are collected in the material ledger.
3) At the end of the period, an actual price is calculated for each material based on the actual costs of the particular
period. The actual price that is calculated is called the periodic unit price.
4) This periodic unit price is used to revaluate the inventory for the period being closed. The inventory value
adjustment to actual cost is offset on the P&L’s inventory revaluation account.

• Periodic Unit Price is calculated as follows:

Preliminary Valuation of the Cumulated Inventory ($) + Cumulated Variances ($)
Cumulative Inventory (Kgs)
• See Example Below:
Stock Value Price Variance
Preliminary Valuation: 1,000 $1,500 $1.50 No variance… valued at std cost
ak a Beginning Inventory at Std cost
Receipts: 1,000 $2,000 $2.00 PO price generates $500 of total variance
ak a GR or 101 movement type 2,000 3,500 $1.75 -$875.00
Consumption: (500) ($875) $1.75 Consumption at std cost
ak a GI or 261 movement type Total variance consumed: $125
Closing Valuation: 1,500 $2,625 $1.75 Ending Inventory at actual cost
ak a Ending Inventory at Actual cost
 4. Periodic Unit Price Calculation – CKM3
• Periodic Unit Price is calculated as follows:
Preliminary Valuation of the Cumulated Inventory ($) + Cumulated Variances ($)
Cumulative Inventory (Kgs)

Try calculating the

Periodic Unit Price for
this material using data
from the CKM3 display.

See below
calculation:
Preliminary Value ($) $ 1,400,638
Cumulated Price Dif ($) (1,386,875)
Total ($) $ 13,763
/ Cumulated Inv (Kgs) / 1846
Periodic Unit Price $ 7.4517
CKM3 Price Unit x 100
CKM3 Periodic Unit Price $ 745.17
4. Periodic Unit Price Calculation – ZCOGS
• In addition to revaluing ending inventory, Material Ledger is capable of revaluing Cost of
Goods Sold & Consumption Cost through the ZCOGS program.
• The ZCOGS program must be run after the ML Cockpit execution.

Document type - ML
5. Material Ledger Fact Sheet
Key Transaction Codes:
• CKMLCP – Material Ledger Cockpit – Used to execute ML period end closing.
• SE38, ZSAPRCKML_COGS – ZCOGS Execution Screen (after ML Cockpit)
• SE38, ZSAPRCKML_COGS_DOC – ZCOGS Document Display & Reversal
• CKMB – Material Ledger Document Display - Used for drill-down in ML entries
• CKM9 – Display of ML-relevant Customizing Settings for a plant
Reports:
• CKM3 Material Price Analysis
• S_P99_41000062 Prices and Inventory Values
• S_ALR_87013180 Materials by Period Status
Accounts:
Income Statement Balance Sheet
• 5272202000 COS Price Fin Goods 1272101000 Inv Raw Materials
• 5272402000 COS Reval Fin Goods 1272101100 Inv Raw Mat. Var.
• 5272202101 Variance Price-Others 1262101000 Inventory-Finished Goods
• 5272401000 COS Reval Raw Matl
• 5272401000 Variance-Revaluation-Raw Mat.
• 7220100000 F/E Realized Loss
6. T-Accounting: Part I: Pre-ML Postings
Operating Activity
1) A Finished Goods Material reaches a low level of inventory.
A) Warehouse operator accepts delivery of the material at the receiving dock & scans
the container with the bar-coding gun.
B) Accounts Payable receives the invoice and schedules payment.
2) Customer/Sales Rep places an order with Customer Service Center. The CSC Rep
validates the customer #, material # and inputs the sales order with the
requested delivery date (RDD).
E) The FG is sold.
SAP Activity
1) MRP (material resource planning) in SAP generates the requisition for raw material X.
The material analyst/scheduler converts the req to a purchase order.
A) The barcode scan validates the PO & assigns an Inv Lot # to the material. This Goods
Receipt (GR) is a 101 movement type debiting Inventory at std price & crediting
GR/IR at the PO price. If the PO price differs from the std price, the variance
books to the P&L.
B) This Invoice Receipt (IR) clears GR/IR transferring the balance to Accounts Payable. If
the invoice price differs from the PO price, the variance books to the P&L.
2) SAP checks the stock quantity for the requested FG and queues the order into the

Example
delivery due list.
E) The sale generates a 601 movement type in SAP with JEs in FI booked at the FG's std
• The Std Cost for the material is incorrect in Material Master set at 420.00 per Kg. cost.
• The Purchase Order was created at the correct price of 4.20 per Kg for 100 Kgs.
In October, the only transaction was the plant’s receipt of the 100 Kgs of material.
In November, 10 Kgs were shipped to the customer at a price of $7.00 per Kg.

Income Statement Balance Sheet Profitability Impact

Pric e Va ria n c e COGS (S td Co s t) FG In ven to ry GR/IR October
41,580 A E 4,200 A 42,000 420 A
Pre-ML Posting: High CM & OM inflated
B 420 by credit in Price Variance.
4,200 E
Post-ML Correction: Price Variance is
cleared normalizing October CM & OM.

Re va lu a tio n - FG S a les A/Receivab les A/Payab le November

70 E E 70 420 B
Pre-ML Posting: Low CM & OM drained
by incorrect standard COGS.
Post-ML Correction: Revaluation of cost
actualizes CM & OM.
6. T-Accounting: Part II: Post-ML Postings
SAP Activity Material Ledger Entries
A) A Goods Receipt (GR) or 101 movement debits Inventory at std price & crediting C) Material Ledger calculates the periodic unit price for the material and transfers the
GR/IR at the PO price. variance to the balance sheet.
B) Accounts Payable receives the invoice and schedules payment. D) ML entries from October are reversed in November.
C) In October, Material Ledger is run through CKMLCP transaction. F) Material Ledger calculates the periodic unit price for the material and allocates the
appropriate per pound amount to the P&L & to the balance sheet.
D) In November, prior period Material Ledger entries are automatically
reversed.
E) The FG is sold.
F) In November, Material Ledger is run through CKMLCP transaction.

Income Statement Balance Sheet Profitability Impact

Pric e Va ria n c e COGS (S td Co s t) FG In ven to ry GR/IR October
41,580 A E 4,200 A 42,000 420 A
Pre-ML Posting: High CM & OM inflated
41580 C B 420 by credit in Price Variance.
D 41,580
Post-ML Correction: Price Variance is
4,200 E cleared normalizing October CM & OM.
F 37,422
Re va lu a tio n - FG S a les November
C 41,580 70 E A/Receivab les A/Payab le
41,580 D
Pre-ML Posting: Low CM & OM drained
E 70 420 B by incorrect standard COGS.
F 37,422
Post-ML Correction: Revaluation of cost
actualizes CM & OM.