The document discusses the features and benefits of implementing SAP's Material Ledger module. Material Ledger allows companies to value inventories in multiple currencies and valuation methods in real-time. It provides a hybrid approach of valuing inventories at standard cost during a period and calculating a periodic moving average price. Material Ledger also enables the amortization of price variances over the life of inventories. Implementing Material Ledger provides enhanced inventory visibility and management.

1. REALISE THE POTENTIAL OF SAP MATERIAL LEDGER

2. TABLE OF CONTENTS
MATERIAL LEDGER OVERVIEW 3
MATERIAL LEDGER VALUATION 12
8 TRADITIONAL VALUATION APPROACHES
19 ACTUAL COSTING

3. MATERIAL LEDGER OVERVIEW

4.  Does your Organisation want to value Inventories in multiple currencies in
real-time?
 Does your Organisation want to value Inventories at Standard Cost and also
want to evaluate Inventories at Moving Average Cost?
 Does your Organisation want to amortize purchase and production variances
over the life of the Inventories?
 Does your Organisation want an effective Transfer Pricing mechanism
between your various businesses within the same legal entity? (covered in a
separate presentation)
If you have answered yes to any of the above, then implementing SAP Material
Ledger will automate the process and significantly improve productivity for your
Organisation.
Factors driving the implementation of Material Ledger

5.  Multiple Currency
 Allows Inventory values and Inventory transactions to be valuated in local currency and
group currency
 Multiple Valuation
 Combine the benefits of Standard Price Control for preliminary valuation and Moving
Average Price Control for Balance Sheet valuation
 Enable accurate periodic valuation
 Settle proportionate price variances to period end inventories
 Roll up price variances throughout the production process
 Enable Transfer Pricing for intra-company transfers
Material Ledger : Features

6. What Is Material Ledger?
The term "Material Ledger" is a misnomer; it is not a "financial" Ledger but a
capture-and-report mechanism of Inventory values
It is an enhanced sub-ledger for Materials. Material Ledger tables are the
base tables that capture Material valuation data like goods movements, price
changes, variances.
If Material Ledger is set up for multiple currencies and these currencies are
aligned with currencies in Financial Accounting, then Material Ledger values
reconcile with Financial Accounting values in all aligned currencies.

7. Multiple Currency Views Of Material Master
Activating Material Ledger (ML) allows you to view
Material Master Inventories and transactions in
multiple currencies. It is recommended to map FI and
CO currencies to ML. This will allow easy
reconciliation between the various ledgers. In the
above example, company code currency is the legal
view and group currency is used for group costing
and profit center (Transfer Price) view
ML generates 6 views:
• current period/ current year
• previous period/ current year
• Last period/ previous year
• Future Costing Run
• Current Costing Run
• Previous Costing Run
In this example, all Material movements post in 2
currencies (EUR, AUD) and 3 valuations (legal, group,
profit center) in Financials and ML.

8. TRADITIONAL VALUATION APPROACHES

9.  Organizations had to choose between Standard Cost and Moving Average Cost
as the basis for valuing Inventories
 Both methods had its advantages and disadvantages. Neither solved the
issues faced by Organizations in a dynamic market place
 Organizations were looking for a hybrid of Standard Cost and Moving Average
approaches
 Material Ledger allows organizations to value Inventory and transactions at
Standard Cost during the month. It provides Periodic Moving Average price as
information during the month and (optionally) as a basis for re-valuing
inventories at the end of the month
Traditional Valuation Approaches

10. Moving Average price is adjusted with every receipt and hence gives a real-time value for
materials. However, this value is distorted when variances and price differences are settled to
Inventories.
Material Valuation: Moving Average
Period 1 Period 2
Settlement of
Variances to Inventories

11. Standard Price allows comparison of actual costs with standard and hence
better evaluation of variances. However, using standard price to valuate
inventories provides poor visibility of actual costs. There could be significant
lead time before standard prices could be adjusted. Selling prices dependant on
out-of-date standard cost could lead to lower margins.
Material Valuation: Standard Cost
Period 1 Period 2
Settlement of Production
Variances to P&L

12. MATERIAL LEDGER VALUATION

13.  A Periodic Moving Average price is the moving average price of that period.
This price avoids the fluctuations seen in Traditional Moving Average price and
is more dynamic than Standard price.
 Organizations can choose to valuate their Inventories at Standard Price as
preliminary valuation during the month. Periodic Moving Average price is
available as analytical information in Material Ledger
Periodic MAP = (Cumulated Receipts at Standard Price) + (Cumulated Price Differences)
Cumulated Receipt quantity
Example = (126 tonnes * 900 AUD) + 2,106.90 AUD = 916.72AUD/tonne
126 tonnes
Periodic Moving Average Price

14. Material Valuation: Periodic Moving Average Price
Settlement of
Production
Variances to P&L
Period 1 Period 2
Revaluation of
Standard Cost
based on PMAP
Period end
Periodic Moving
Average Price
Standard Cost

15. Material Price Analysis – In Group Currency
Allows you to view
the report in multiple
currencies/ valuation
Real-time
valuation at
Standard
Cost
Periodic
Moving
Average Price

16. Material Price Analysis – In Company Code Currency
ML calculates
Periodic Moving
Average real-time
Now in Company
Code (Legal)
currency
Traffic Light
display whether
ML closing has
run

17. Material Price Analysis – Cost Component View
Actual Costs split by
Cost Components in
real-time

18. Material Price Analysis – Price History View
Price History
view

19. ACTUAL COSTING

20. During the period, materials movement are valued at standard price. Material
Ledger stores all price differences as they occur. This allows Material Ledger to
produce reports (Material Price Analysis) that evaluate the Periodic Moving
Average Price of the material in real-time
Actual Costing Process Flow
MATERIAL LEDGER
• Records Actual Values
throughout the period
• Inventory Valued at Standard
Price
• Materials reported at Standard
Price and Periodic Moving
Average Price
Raw Materials
(Receipts / Invoices)
Purchase Price
Variances (PPV)
Exchange Rate
Variances
Finished/ Semi Finished
Materials
(Process Orders)
Production Variances
Transfer Variances
Actual Costing (period end)
Single-level Price
Determination
• Puts PPV and Exchange
Rate Variance back to
specific raw materials
Multi-level Price
Determination
• Puts Production Variance
and Transfer Variance
back to finished/semi
finished goods
Post Closing
(optional)
• Posts adjustments to
inventory and
consumption to reflect
actual value

21. What Is Price Determination?
Price determination is the process whereby Material Ledger calculates and
assigns the Periodic Moving Average price of materials to consumption and
Inventory
Single-level price determination of component material is calculated based on
the standard price of the material, and its price variances
Multi-level price determination of built materials is calculated based on the
standard price of the material, its price variances, single level price differences,
and input material differences

22. Determination Of Periodic Unit Price
In this step, Material Ledger assigns the Periodic Moving Average Price to closing Inventory. This
is only a calculation and does not result in adjustment to Inventory values.

23. Material Ledger Closing (Optional)
Material Ledger allows (as an optional period close activity) revaluation of
Inventories at Periodic Moving Average price.
Technically, SAP switches the Price Control for the material from S (standard) to
V (Periodic Moving Average) for the period for which the Material Ledger is
closed
This activity generates price change accounting document in Financials
The Price Control for the next period remains at S (standard). Hence, the price
change document posted in the previous period (that was closed) will be
reversed automatically in the next period.

24. Material Ledger Closing (Accounting Entries)
BI 0.00
GR 80,589.60
CE 301.35
Material Stock
CO 63,960.00 IR 82,050.00
GR/IR Clearing
GR 82,050.00
Accounts Payable
Price Difference
GR 1,460.34 CE 301.35
Material Consumption
CO 63,960.00
Tonne EUR Std Cost Price Diff Tonne EUR EUR
@ STANDARD COST @ PERIODIC MAP
Beginning Inventory (BI) 0 639.60 0.00 0 639.60 0
Goods Receipt (GR) + Price
differences
126 651.19 80,589.60 1,460.40 126 651.19 82,050.00
Periodic MAP 126 651.19 82,050.00
Consumption (CO) 100 639.60 63,960.00 1,159.00 100 651.19 65,119.00
Ending Inventory (EI) 26 639.60 16,629.60 301.40 26 651.19 16,931.00
IR 82,050.00
AMORTIZATION OF VARIANCES
ML transfers back to Balance
Sheet that portion of variance as
relates to Inventory at hand. This
amortized variance will post to
P&L in the month this inventory
is consumed/ sold

25. After Material Ledger Close

26. Material Ledger Accounting Entries (Closed Period)
In company code
currency
In Group currency

27. Material Ledger Accounting Entries (Next Period)
In company code
currency
In Group currency

28. Verity provides the vision, and the framework for
a successful Finance process and technology
transformation and re-engineering.
We at Verity believe we have the experience to make success happen for our
clients. This belief comes from our track record of successfully engaging
customers in their pursuit of the best-of-class business solutions. We believe that
this search with Verity is short because of our past experience, and fruitful
because we do not simply deliver an end-result, but strive to deliver value-added
service that earns us the trust and confidence of our customers.
Verity Business Solutions

29. Rajesh is an accomplished and successful Finance professional with over 20
years’ experience in Finance processes and related technologies.
He is a qualified accountant, and he has worked in Finance
departments of multinational companies. With this strong
foundation in Finance, he has managed to successfully
implement best-in-class Finance processes in IT (primarily SAP).
Over the last few years, Rajesh has led Finance teams on large SAP
implementations and provided his insights and experience to provide a workable
and an improved solution for his customers. Rajesh is a SAP Certified Application
Professional.
Presented by Rajesh Shanbhag

30. CONTACT US
VERITY BUSINESS CONFIDENTIAL 30
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