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Material Ledger and Actual Costing
February 1, 2018 | 969 Views |

Sarvottam Darshan
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FIN Material Ledger
actual costingcontrolling

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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 inventory 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

Note: The transaction CKM3/CKM3N was refactored and now provides a simplified and improved
view of materials in plants with active Actual Costing in S/4 HANA. It replaces the former CKM3 view
Price Determination Structure. The former CKM3 Price History view is still available via transaction
CKM3PH for all materials (independent of price determination control and active Actual Costing). All
other views formerly offered by CKM3/CKM3N are no longer available.
Note reference: wiki.scn.sap.Com
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

Note: As of S/4HANA 1610, there is a new Actual Costing with simplified data model and calculation
logic. You may find detailed explanations on this page.
Note reference: https://wiki.scn.sap.com/wiki/pages/viewpage.action?pageId=477832259

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 Update Structure to a Valuation Area (T.Code:OMX8):

 Activate actual costing

 Activate Actual Cost Component Split

 Check Material Ledger Settings (T.Code:CKM9)

 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.

 Detailed information on posting Logic in material ledger: OSS note 908737

 Setting Material Ledger Unproductive in Development and Quality servers OSS note 108374
 Conclusion:
SAP’s 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

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