Use Alternative Valuation Runs in the Material Ledger to Smooth Seasonal Price Variances

  • by Janet Salmon, Product Manager, SAP AG
  • November 15, 2007
The classic costing run builds a quantity structure that takes account of all goods movements and invoices in the period to determine a periodic unit price for each material. If the raw material prices are subject to seasonal fluctuations or the activity prices vary substantially, then the inventory valuation for each period may be considered too arbitrary. An alternative valuation run takes the same basic data as the initial costing run and calculates it over a longer time frame to smooth out the variances.
Key Concept

The alternative valuation run is an additional costing run, performed after the first costing run. It cumulates the beginning and ending inventory levels, quantity structure, and single-level price differences over a longer time frame than the initial costing run for the period. You can also use it to apply alternative valuation approaches to the same quantity structure in the same way an inventory cost estimate in Product Cost Planning can take a different approach from the standard cost estimate for balance sheet valuation. The system help texts sometimes refer to the classic costing run as the “periodic run” to distinguish it from the alternative valuation run.

When I talk to organizations about implementing the material ledger, I’m often asked two sets of questions. The first concerns the way you use the material ledger to calculate a periodic unit price based on all the invoices and goods movements in the period. What if the price of the raw materials varies radically from period to period? Can the cost of manufacturing strawberry yogurt really be the same in January as it is in June? Shouldn’t it be possible to calculate an annual or quarterly unit price instead of just a price per period?

The second concerns pricing approaches in general. Is it always appropriate to take the prices from the invoices and roll them through the production levels to the ending inventory? On a wider scale, if you report inventory values according to multiple accounting principles, can you apply different approaches of inventory valuation to the same set of base data?

Since R/3 Release 4.7 (R/3 Enterprise), the alternative valuation run has provided answers to both of these questions. I’ll show you how to use the alternative valuation run to calculate a price based on data in more than one period and how to use it to apply alternative valuation approaches. Let’s first learn a bit more fundamental information concerning an alternative valuation run.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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