Material Price variance related ( Interview Q & A ) in SAP MM.- Basic Knowledge

 Price control in SAP R/3 system:-

There are two types of price control for Material types.

- V Moving average price/ periodic unit price: price that changes periodically as a result of goods movement and invoice entries. It is calculated by dividing the value of the material by the quantity of the material in inventory. It references the base unit of measure and price unit in the material master records.

- S Standard price: constant price at which a material is valuated without taking goods movement and invoices into account.

For each material, you must specify the price control indicator in the material master record in Accounting1 view according to which the material is to be valuated.

Standard Setting in the Material Master

Price control is preset as follows in the standard SAP R/3 system:

- Moving average for materials procured externally
- Standard for in-house produced materials

SAP recommends using the presetting for each material type.

Configuration:
IMG Menu :- SPRO - SAP Ref. IMG - Materials Management - Valuation and Account Assignment - Define Price Control for Material Types
Transcation Code :- OMW1.

Standard Setting in the Material Master

Price control is preset as follows in the standard SAP R/3 system:

- Moving average for materials procured externally
- Standard for in-house produced materials

SAP recommends using the presetting for each material type.

Configuration:
IMG Menu :- SPRO - SAP Ref. IMG - Materials Management - Valuation and Account Assignment - Define Price Control for Material Types
Transcation Code :- OMW1

Moving Average Price :
- Goods Receipt are posted at the goods receipt value
- The price in the material master is adjusted to the delivered price
- Price differences occurs only in exceptional case
- Manual price changes are usually unnecessary. However, they are possible.

Example:-

In Moving Average price, If Price is maintained 10/- per qty and we have ordered 10 qty with value of 11/-. After goods received you will get below a/c entry.

 Stock A/C - Dr.              110 +

GR/IR clearing account is  Cr-     110 -.

Value will be show in your material master 10 qty and value 110 and your average value will be 11/ qty. So In this case system will adjust the price.

Standard Price:
- All inventory postings are carried out at the standard price
- variance are posted at the price difference account
- variances are updated
- price change can be monitored

Example:-

In Moving Average price, If Price is maintained 10/- per qty and we have ordered 10 qty with value of 11/-. After goods received you will get below a/c entry.

 Stock A/C - Dr.              100 +

GR/IR clearing account is  Cr-     100-

Price Difference A/C is      Cr-  10-

Value will be show in your material master 10 qty and value 100 and your average value will be 10 Rs/ qty. So In this case system will not be adjust the price. It will hit another account for the same.

Some Important Note:-

From Standard Price to Moving Average Price

You can make this changes any time. The moving average price (which until now has been updated for information purpose only) replaces the standard price and is used for valuation from now.

From Moving Average Price to Standard Price

You cannot make changes in the following two cases:
- If the material master record is set up as a valuation header record for a material subject to split valuation.
- If the standard price comes from costing and is not equal to the moving average price
If the change is possible, the moving average price becomes the standard price, which is then used for valuation.
You change the type of price control by overwriting the price control indicator in the material master record with the new indicator.
Changing the type of price control for a material does not change the value of the material stock, since in both cases the current price becomes the new price.