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Executive Summary:

From the time of Luca Pacioli, the father of accounting, till today,
inventory valuation has been a point of debate. In countries with stable
inflation rate it is considered fine to have inventory valuated at standard
cost. In such countries material inventory values are normally carried by
the SAP system in one currency with raw materials valuated at moving
average price and semi-finished and finished goods valuated at standard
price. In countries where currency is not stable and inflation rates are
high it is pertinent to have inventoried valuated at actual costs. In such
countries it might also be required to record inventory valuation in more
than one currency, usually a local currency and another more stable
reporting currency like the USD to indicate the inflationary impact on
the inventory values. SAP supports this requirement of showing
inventory valuation in multiple currencies at actual cost using the
functionality of material ledger and actual costing. This whitepaper
provides an overview of material ledger, actual costing, its setup in SAP
and some known issues based on real life project experiences.
Introduction: Material Ledger and actual Costing in SAP
Material Ledger in SAP essentially is a line item wise record showing
changes in stock and prices with each material movement in up to three
currencies. Material records pertaining to opening stock, goods receipt,
invoice receipt, debits, credits etc get logged in the ledger along with the
price and exchange rate differences throughout the month. The currency
translations for the three currencies happen at historical exchange rates
available at the time of posting. This ledger with a complete record of
each single transaction of the material forms the basis to calculate actual
cost for the material at period end. The actual price thus calculated in
SAP is called the periodic unit price and can be used to revaluate

inventory. This actual price can then also be treated as standard cost for
the next month. A typical material ledger and actual costing flow in SAP
is as shown below:

The material ledger also becomes useful in cases where transfer prices
are active between organizational units of the same enterprise i.e.
transfer prices between two legal entities, two groups or two profit
centers. In this case material ledger provides the base value for transfer
price calculation for the sending material and records the transfer price
for the receiving material.
Interface with the User
With material ledger active a SAP user gets exposed to some additional
information and operational steps. Following additional information is
available at his/her disposal:
Line item display of all transitions that have happened on the
material
Ability to see the inventory value in more than one currency
Users can conduct a detailed material price analysis at any time as
shown below:

Material Price Analysis-Price History View: CKM3

At period end the user can perform actual cost update based on the
transactional figures captured in material ledger as follows:

Actual Costing-Costing Cockpit: CKMLCP

SAP also provides a plethora of reports for business users in Actual


Costing / Material Ledger Information System.

Settings and Configuration


The settings and configuration steps involved are as listed below:
Activate Valuation areas for Material Ledger (T.Code: OMX1)
Assign Currency Types to Material Ledger Type (T.Code: OMX2)
Assign Material Ledger Types to Valuation Area (T.Code: OMX3)
OBYC Settings (Regular setup+ material ledger cost price
difference setup etc)
Define Movement Type Groups of Material Ledger (T.Code:
OMX7)
Material update structure (T. Code : OMX9)
Assign Movement Type Groups of Material Ledger (T.Code:
OMX0)
Assign Material
(T.Code:OMX8):

Update

Structure

to

Activate actual costing


Activate Actual Cost Component Split
Check Material Ledger Settings (T.Code:CKM9)

Valuation

Area

Production Startup (CKMSTART): do a test run initially


Production Startup (CKMSTART): The expected results of a good
material ledger production startup is as shown below

Note: During material ledger and actual costing setup


transaction code CKM9 is used as a key tool to ensure the
setup is technically fine at each step. Each element in this
report should show (ok) as a confirmation for the setup
to be fine. All the checks except one are set ok once the
above setups are correctly maintained. The one check
which does not come through the above setup is the
Involved in cost obj. Controlling setup for material
ledger setup. This check automatically becomes active
the moment the first cost object (Production Order,
process Order, cost collector) for the production process
is created in SAP. A section of CKM9 result is as shown
below:

Some additional information for material ledger implementations:

Material masters do not get created after material ledger is made


active but not productive. So either create it before material ledger
is made active or after it is productive.
All previous material ledger periods need to be closed in
production before going live. In number of cases chances are that
material ledger gets productive in one month (say 04,2012) and
then business tries to execute closing after the completion of the
next month ( say 05, 2012). In such cases system generates error
message. Forced closing as per OSS note number 361236 is
required in such cases.
Detailed information on posting Logic in material ledger: OSS
note 908737

Setting Material Ledger Unproductive in Development and Quality


servers OSS note 108374

Conclusion:
SAPs material ledger functionality provides the ability to record
inventory values in more than one currency and indicates the inventory
inflationary trends. Line item wise material transactions provide a
meticulous approach to conduct actual costing at period ends. It provides
detailed information to users on the flow of actual costs and the impact
due to it. The functionality needs to be activated with caution as once
activated in production environment it cannot be deactivated.
References
http://help.sap.com

Contact Details:
Sarvottam Darshan
Senior Consultant-SAP FICO
IBM India Pvt. Ltd
E-mail:sdarshan@in.ibm.com
sarvottamdarshan@yahoo.co.in