In one of his presentations at Financials 2013 Paul Ovigele spoke about the process of streamlining parallel valuation and actual costing using guidelines to exploit functionality in the material ledger. I asked him some questions about this process.

Paul, you spoke in a session titled “Streamline parallel valuation and actual costing with expert guidelines to exploit key material ledger functionality.” Could you cite a few key tips about streamlining parallel valuation and actual costing with material ledger functionality for users to use now?

The material ledger serves two broad purposes: First, it allows you to revalue your standard costs to actual costs for each material. Second, it allows you to record material prices in three currencies and according to three valuation approaches. Five settings needed to achieve this goal are:

• Activate valuation Areas for Material Ledger (transaction OMX1)
• Assign Currency Types to Material Ledger Type (transaction OMX2) Assign Material Ledger Types to Valuation Areas (transaction OMX3)
• Run Production Startup for Material Ledger (transaction CKMSTART)
• Change Material Price Determination to “Single/Multilevel” (transaction CKMM)

In this session you also discussed required steps to execute the actual costing run at period end. Could you briefly list the steps and also state which one is the most challenging?

The steps needed in order to execute actual costing are as follows:

1. Selection: This selects all materials that have transactions during the month.
2. Determine sequence: This identifies all the materials that have been issued to other materials.
3. Single-level price determination: This calculates the variances that have occurred for each individual material.
4. Multilevel price determination: This calculates the variances that are passed from a lower-level product into the product to which it was issued.
5. Revaluation of consumption: This calculates the variances that are passed from a lower-level product to a nonmaterial object (such as a sales order or cost center).
6. Post closing: This step posts the variances back to inventory (or adjustment) accounts of the material or to the subsequent materials to which the variances were issued. This is the most challenging step as it takes the longest to run, it requires the posting period of the next month (in both FI and MM)to be opened, and it blocks any subsequent standard cost update in that period.
7. Mark material prices: This allows you to mark the material ledger price as a future standard cost.

Another topic of the session was how to use parallel valuation in conjunction with parallel ledger functionality in SAP General Ledger. Is executing parallel valuation with the SAP General Ledger’s parallel ledger functionality a lot different from completing this process using the classic General Ledger? If so, what’s new?

What’s new with the SAP General Ledger is that you can create an alternative valuation run in the material ledger that is based on a different account standard (e.g., IFRS) and map the parallel cost of goods sold to a parallel ledger. This is not possible with classic G/L unless you activate the Special Purpose ledger.

You also spoke about guidelines to use material ledger information to compute the actual cost of sales components in Profitability Analysis (CO-PA). Which of these guidelines is the most important for users to remember?

Once you have made all the settings, such as creating a valuation strategy and assigning it to a point of valuation; creating a costing key and assigning it to the relevant materials or material types; and assigning the cost components to the relevant value fields, you must run the periodic valuation transaction (KE27) in order for the actual cost components to be updated.

When you speak with clients about parallel valuation, actual costing, or functionalities of the material ledger, do you notice a common area of confusion? In other words, are you asked the same question by several clients?

A common question I am asked is whether materials that are valued at moving average price are considered in material ledger. The answer is that if you are using material ledger for parallel valuation alone, then yes, they are considered. However, if you are using material ledger for actual costing as well as parallel valuation, then only materials valued at standard price are considered. The system treats moving average price materials as already being at an actual cost and hence does not consider them in the actual costing run.

Gary Byrne

Gary is the managing editor of Financials Expert and SCM Expert. Before joining WIS in March 2011, Gary was an editor at Elsevier. In this role he managed the development of manuscripts for Elsevier’s imprint responsible for books on computer security. Gary also has held positions as a copy editor at Aberdeen Group, a Boston-based IT market research company, and as an editor at Internet.com, a publisher of content for the IT community. He also gleaned experience working as a copy editor for International Data Corp., a Framingham, MA-based IT market research company. He earned a bachelor of science degree in journalism from Suffolk University in Boston. He enjoys traveling, sailing as a passenger onboard schooners, and helping his wife, Valerie, with gardening during summer weekends. He’s a fan of all the Boston sports teams and once stood behind Robert Parish in a line at BayBank. He felt small and didn’t ask for an autograph. You can follow him on Twitter at @FI_SCM_Expert. His online footsteps can also be found in the SAP Experts group on LinkedIn.

You may contact the author at gary.byrne@wispubs.com.

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