In logistics, the material master record is one of the most critical for businesses to run their operations effectively and efficiently. It is necessary to create a material record for any material that is purchased, sold, used in production, consumed or created for commercial purposes. Materials differ in their types, and common types of materials include raw materials, trading goods, finished goods, and semi-finished goods. This diversity necessitates accurate and comprehensive management of the material master record.
The Role of Product Costing and Material Master Maintenance
Product costing is vital for an enterprise to accurately calculate its profitability. The product costing process is a key control mechanism that involves planning product costs and determining material prices. This process is integrated with the production planning (PP) and materials management (MM) modules in SAP S/4HANA. It is crucial to properly configure certain master data to ensure accurate product costing. These master data include the material master, bill of materials (BOM), work center, and routing.
In this article, we will discuss the importance of Material Master in logistics processes and how correct structuring of Product Costing is critical. We will also touch upon the technical details of data compliance and costing processes with the ACDOCA table in SAP S/4HANA.
Material Master: A Core Data Object for Logistics and Costing
The material master is a foundational data object that underpins all logistics processes in SAP S/4HANA. All raw materials, semi-finished goods, and finished products are created and managed within this record. Additionally, services can also be defined as materials. One of the significant changes introduced with SAP S/4HANA is the expansion of the material number length from 18 characters in SAP ERP to 40 characters in SAP S/4HANA. This change, previously applied only to specific industries, now has broader implications as outlined in SAP Note 2270396.
To enter material cost information, certain basic configurations are required. Each material is created under a material type, which is used to classify materials with similar characteristics. The Accounting and Costing views must be enabled for material types relevant to costing.
Defining Material Types
To define settings for material types, follow the menu path "Logistics—General • Material Master • Basic Settings • Material Types • Define Attributes of Material Types". Here, SAP's standard material types are displayed, representing various material categories. When creating custom material types, the convention is to start their names with "Z" or "Y".
Let's create a new type of raw material. Find and select Raw materials, which is SAP's standard raw material type, and click "Copy As..." button. Enter "Z" as the name for the new material type, and type "Raw materials" as the long description.
The "User Departments" section contains all possible views that should be maintained in the material master record. Ensure that the Accounting and Costing views required for financial accounting and product costing are selected. Press Enter to accept these settings and proceed. The system will output a message with the number of dependent entries copied for the material type; confirm this message and save the new material type. To create a new material, follow the application menu path "Logistics • Materials Management • Material Master • Material • Create (General) • Create (General)"
The steps above involve entering basic information such as material type and material number. The material number can consist of letters or numbers, depending on the number range configuration. For example, let's select the pharmaceutical industry and the material type we just created, ZROH Raw Materials.
On the start screen of the material creation process, the material number and industry sector information are entered. Depending on the selected industry and material type, specific views must be selected for the material master record. The most important of these views for our purposes is the "Accounting 1" view.
In this view, special attention should be paid to the Price Control field. There are two options available:
Standard price (S)
Moving average price/periodic unit price (V)
The choice of price control affects the value of the goods in stock, allowing you to keep the material price constant (standard price) or change it at each movement of goods for the material (moving average price). In the example below, the price control is set to S (standard price); however, you can choose to use price control V (moving average price) for raw materials.
The choice of price control is arguably one of the most critical decisions for manufacturing companies. Maintaining a fixed standard price requires a robust costing process to determine the standard costs of a unit of product. While it may seem easier to use a moving average price since valuation is driven by purchasing, the volatility associated with moving average price can be risky, as it is influenced by supplier agreements and exchange rate fluctuations when purchasing in a different currency. SAP recommends against using the moving average for manufactured materials due to potential distortions caused by timing differences in cost postings, period closures, and the number of open orders for the same material (see SAP Note 81682 for more details).
Price Determination Selection
Configuration in Material Master is critical not only for accurate product costing, but also for financial statements and data compliance. In particular, the pricing options enable compatibility with Material Ledger and the ACDOCA table in SAP S/4HANA.
The choice of price determination reflects whether your organization is working solely with the Material Ledger (mandatory with SAP S/4HANA 1511) or with actual costing (optional with SAP S/4HANA). Two options are available for price determination:
Transaction-based price determination (2): For materials with price control V, the material is valued at the moving average price. With price control S, the material is valued at the standard price, while the moving average price is calculated for informational purposes.
Single-/multi-level price determination (3): The valuation price (standard price) remains unchanged, and a periodic unit price is calculated for the material valuation at period-end. This option is only available for materials with price control S (standard price) and is recommended when using Single-/Multi-level material pricing alongside multiple currencies and/or valuations. The periodic unit price is updated for informational purposes and is only used for material valuation during period-end closing.
In the above example, materials with price determination 3 will be updated with the standard price (TRY/USD/EUR) across multiple currencies. Instead of using the moving average price, which fluctuates with every goods movement and invoice posting, the valuation will be based on the weighted average price, reflecting cumulative purchase price variances and production variances captured during the period and calculated at period-end.
Considerations for Reconciliation with ACDOCA Table in SAP S/4HANA
When material types and cost calculation are configured correctly, financial statements in SAP S/4HANA are created correctly. However, data compatibility with the ACDOCA table should also be taken into account in this process. In this section, we will discuss important points on how to achieve this harmony.
Organizations can expect errors if there is a currency mismatch or data reconciliation issues between ML tables and table ACDOCA (the new FI line item table in SAP S/4HANA). For further details, refer to SAP Notes 2345739 and 2267834. Organizations using actual costing should consult SAP Note 2530890 for the sequence of steps required to ensure reconciliation with the ACDOCA table. Moreover, organizations utilizing parallel valuations with transfer prices or cost of goods manufactured (COGM) must refer to SAP Notes 2270414 and 2443223, as this data needs to be migrated into the ACDOCA table using the appropriate valuation view, currency, and ledger.
Conclusion
While correct configuration of Material Master is the basis for product costing processes, data compliance with the ACDOCA table is critical for the accuracy of financial statements. Therefore, both price determination strategies and data compatibility need to be carefully considered when calculating costs. The choice of price determination is a critical decision point for material valuation in SAP S/4HANA. This decision forms the basis for accurate product costing and should be carefully considered based on material types, market dynamics, and economic conditions. While moving average price is particularly recommended for raw materials and external purchases, standard prices are advisable for finished and semi-finished products. Economic factors, including inflationary pressures, should also be considered in this decision-making process.
Ömer Serkan YAĞLI
SAP Consultant
References:
Jotev, Stoil. Configuring SAP S/4HANA® Finance (2021)
Salmon, Janet; Walz Stefan. Controlling with SAP S/4HANA®: Business User Guide (2021)
Maheshwari, Anup. Implementing SAP S/4HANA Finance: System Conversion Guide (2020)
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