Moving Average Cost

Published on June 2016 | Categories: Types, Research, Internet & Technology | Downloads: 43 | Comments: 0 | Views: 399
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How SAP calculates Moving Average Cost

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Moving Average Cost Value Calculation There are two common ways to value a company's inventory: weighted average cost and moving average cost. Weighted average cost simply takes the cost of goods available for sale and divides by the total amount of goods to get a weighted average cost per unit that is then multiplied to get your ending inventory cost. Moving average cost is a bit different in that the cost of the material will change based upon price differences on incoming goods and invoice receipts. In SAP you assign the methodology you choose in the material master's Accounting 1 view under Price control (MBEW-VPRSV). This setting is made at the valuation area level. If you activate the material ledger than you would have some other choices to make by selecting a Price determination value. Note: SAP labels moving average cost as moving average price. SAP uses the following formula to calculate MAC :

Here's SAP's example of incoming GR/IR and the subsequent update to the material master.

In this example we have a material with a current MAC of $1.20 and an inventory count of 100 pieces. We have a PO ordering 100 more pieces and at a price of $1.30 per unit. So how does SAP calculate the final MAC? Let's calculate Quantity_new, Value_new, and Price_new for the incoming goods receipt. Quantity_old + Quantity_inward = Quantity_new 100 + 100 = 200 Value_old + Quantity_inward * Price_inward/Price unit_inward =Value_new 250 + 100 * 1.30/pc = 250 Value_new / Quantity_new * Price unit = Price_new (MAC) 250 /200 = 1.25 Notice that we post to our inventory account and to our GR/IR account a debit and credit of $130. So now our MAC went from $1.20 to $1.25. Now the IR posts with a value of $1.24 per pc. Don't make the mistake of simply averaging out the two prices. Quantity_old + Quantity_inward = Quantity_new 100 + 100 = 200 Value_old + Quantity_inward * Price_inward/Price unit_inward =Value_new 120 + 100 * 1.24/pc = 244 Value_new / Quantity_new * Price unit = Price_new (MAC) 244 /200 = 1.22 The final MAC is now $1.22 for this material. The GR/IR account is cleared for $130, the Vendor is credited for $124. The $6 is then credited against the inventory account.

Sources http://help.sap.com/ https://secure.wikimedia.org/wikipedia/en/wiki/Moving_average_cost

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