Material Ledger

Definition

• The Material Ledger is a tool in SAP that helps to manage and track material information, and the material ledger is a central repository of material information.

• The Material Ledger uses this data to valuate these materials and calculate their prices.

• The material ledger is a basis of actual costing, enabling material inventories to be valued in multiple currencies and supporting various valuation methods.

• The Material Ledger enables actual costing and multiple currency valuations for materials.

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Main Constituents of Material Ledger

Standard Cost and Actual Cost:

• The Material Ledger helps companies track standard and actual material costs, accounting for real-world price fluctuations.

• The Material Ledger carries out an actual costing run at the conclusion of the period, determining the real cost per material based on all the deviations recorded during that time (price variances, exchange rate discrepancies, etc.).

Price Variances:

• When there is a difference between the standard cost (or expected cost) and the actual price paid for a material, the price variance is recorded.

Multiple Currencies and Valuations:

• The Material Ledger supports multiple currencies, enabling companies to track material costs in various currencies, ideal for international operations where purchases may be made in foreign currencies

• The Material Ledger enables parallel valuation of materials using various accounting principles, enabling companies to manage inventory and material costs based on different legal requirements.

Revaluation of Inventory:

• The Material Ledger revalue inventory based on actual cost at the end of the period, ensuring its true value is accurately represented.

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Example:

1. Material: Aluminum Sheets

2. Standard Price: ₹100 per unit

3. Quantity Purchased: 50 units

4. Purchase Order Price: ₹100 per unit (Total: ₹5,000)

5. Invoice Price: ₹110 per unit (Total: ₹5,500)

6. Price Variance: ₹500 (₹5,500 actual − ₹5,000 standard)

7. At period-end, the Material Ledger runs the Actual Costing.

8. Actual Cost per Unit: ₹110 (adjusted for variance)

9. Inventory Revaluation: Inventory is revalued to ₹5,500.

10. Financial Impact: The variance is added to Cost of Goods Sold (COGS).

This captures the basic flow of how the Material Ledger handles price variances and updates costs.

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