As part of management control, SAP provides an integrated and innovative set of tools and solutions to keep costs under control.
An essential tool is SAP Material Ledger, a component of the SAP Controlling module of product costing, which allows you to manage stocks in an integrated way and to value the warehouse in real-time, by reflecting the data in accounting for greater accuracy.
Sap ML’s main goal is to manage product cost and warehouse for different currencies and valuations using actual prices.
Created to meet the legal requirement of valuing warehouse at actual cost at the end of the month, SAP Material Ledger has evolved over time to enable warehouse management at both standard and actual cost.
Standard cost is an estimated/predetermined cost that represents the total cost of the performance or the manufacturing of a product (good/service) under normal circumstances. Standard cost is the price at which each material is valued, and this price is taken as a reference for each movement of the material and each of its transactions in a reporting period (for example a month).
During the reporting period, the warehouse is valued at the standard cost calculated with a specific tool: Material Cost Estimate, a sub-task of Product Cost Planning, a component that belongs to the same SAP module as Material Ledger.
Material cost Estimate allows you through 3 different phases (saving, marking and release) to determine the reference cost at which to evaluate the product.
All goods receipts, invoices receipts, production differences are compared with the standard cost: in presence of discrepancies, between the standard cost of the product and the detected cost (for example, at the time of the invoice receipt), the price differences are written in accounting, without having an immediate revaluation of the warehouse.
When using SAP Material Ledger to evaluate the actual cost, the phase in which the standard cost is determined, and price differences are detected can be defined as preliminary evaluation.
At the end of the period (monthly) SAP Material Ledger comes into play, it calculates the actual costs for the period, considering all material movements and invoices associated with raw materials, actual costs from production order confirmations and all price differences.
At the end of the month, these differences from the standard are reallocated to the cost of the products:
– on a single level (on the single material) by allocating cumulative price differences in proportion to the quantity of final warehouse and the material consumption of the period.
– at multiple levels (from raw materials to finished products) of the production structure, progressively assigning the differences calculated during single-level pricing to subsequent levels of the production process using an effective multilevel quantity structure, comparable to an effective bill of materials (BOM).
Pricing at single and multiple levels determines the Periodic Unit Price (PUP).
Therefore, during the period the material movements are valued at its standard cost and at the same time all price (and exchange) differences are recorded in the Material Ledger, so that they can be used in the monthly closing to calculate the actual cost of the material.
The new actual cost can be used to revalue the stock at the end of the month (warehouse revaluation at the PUP) and can also be presented as a new standard cost in the following period.
This process allows companies to have a clear view of the actual performance of the production process in relation to goals, while also providing evidence of process inefficiencies.
Alternatively, for companies that do not have warehouse valuation at actual cost as a requirement, SAP Material Ledger will be activated, as it is mandatory, but the actual cost calculating tool will not be used, since SAP Actual Costing task is optional.
Another feature of SAP Material Ledger is the valuation for multiple currencies or parallel currencies for up to three and with two valuation methods.
In addition to the local currency, i.e., that of the company that follows the legal valuation method, there is the group currency (especially for reporting purposes it is the valuation for group companies) and the profit center currency (valuation for profit center, for example in cases of price transfer for intercompany transactions).
Once currencies are defined, all material transactions occur at standard cost and at the same time all price and exchange differences are logged in SAP Material Ledger as well as all material movements.
At the time of recording, all valuation-relevant transactions are converted using historical exchange rates or actual rates depending on configurations.
The benefits of SAP cost control solutions:
– Material Cost Estimate is an effective support for sales price generation, warehouse valuation (if the actual cost tool is not used), remaining stocks valuation and price changes. Costing also helps in the construction of the sales margin because it supports the valuation of the cost of sales.
– Material Ledger contributes to the reduction of complexity for the transfer of data from stock to accounting, allows you to value stock at actual cost and to evaluate data in different currencies comparable with the company’s currency. In addition, it is possible to integrate four different processes: single-level or multi-level pricing, consumption revaluation, wip revaluation in a single moment, which is that of liquidation
Material Ledger is a fundamental tool and companies interested in learning more about its advantages and functions can count on the support of Software Business, SAP Partner Open Ecosystem. Contact us to plan a customised project together!