By Rosana Fonseca
Material price determination in SAP S/4HANA controls how material prices are calculated and how inventory is valued in SAP Material Ledger. The material master Accounting 1 view contains two important settings: Price Control and Price Determination.
Price control determines whether inventory is valued using a standard price (S) or moving average price (V). Material price determination specifies whether SAP uses transaction-based price determination (2) or single-level and multilevel price determination (3).
SAP Material Ledger is mandatory for inventory valuation in SAP S/4HANA, while Actual Costing remains optional.
The available material price determination settings are shown in Figure 1.
Figure 1 Material Price Determination Field
Price Determination 2: Transaction-Based
With price determination 2, SAP determines material values based on transactions recorded during the accounting period.
Two price control settings are available:
- S — Standard Price: Inventory transactions are valued at the standard price. SAP calculates the moving average price for information purposes.
- V — Moving Average Price: Inventory is valued using a moving average price that changes as relevant transactions are posted.
Transaction-based price determination is commonly used when materials do not require periodic Actual Costing calculations.
Price Determination 3: Single-Level and Multilevel
Price determination 3 supports SAP Actual Costing by enabling the calculation of periodic unit prices (PUPs) using price differences accumulated during the accounting period.
For materials using price determination 3, price control must be set to S (Standard Price).
During the period, relevant material movements are valued at the standard price, while SAP Material Ledger collects price differences for Actual Costing.
At period end, Actual Costing calculates the periodic unit price (PUP) by considering price differences directly attributable to a material through single-level price determination and, where applicable, differences allocated from lower-level materials through multilevel price determination.
Valid combinations of price control and material price determination are summarized in Table 1.
| Price Control | Price Determination | Valuation |
|---|---|---|
| V — Moving Average | 2 — Transaction-Based | Moving average price |
| S — Standard Price | 2 — Transaction-Based | Standard price |
| S — Standard Price | 3 — Single-Level/Multilevel | Standard price with Actual Costing |
Table 1: Price Control and Material Price Determination Combinations
The appropriate combination of price control and material price determination depends on the organization's inventory valuation requirements and whether Actual Costing is used.
Price determination 2 supports transaction-based valuation with either standard price or moving average price. Price determination 3 supports single-level and multilevel Actual Costing using standard price control.
For a comparison of valuation methods, see our article on Choosing Standard or Moving Average Price.
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About the Author
Rosana Fonseca, an independent SAP consultant since 2000, is certified in SAP FICO and has extensive experience in global SAP projects. Rosana is originally from Brazil, a Canadian citizen in Toronto, and is the author of Practical Guide to SAP Material Ledger.
Glossary
Actual Costing
An optional Material Ledger function that calculates periodic actual costs and supports inventory revaluation.
Material Ledger
SAP functionality that supports inventory valuation in multiple currencies and valuations and provides the foundation for optional Actual Costing in SAP S/4HANA.
Material Master
The SAP master record containing material information, including price control and price determination settings used for inventory valuation.
Moving Average Price
A material valuation price recalculated based on relevant goods receipts and invoice postings.
Multilevel Price Determination
Rolls eligible price differences through production levels to receiving materials.
Periodic Unit Price (PUP)
An actual periodic price calculated by Material Ledger Actual Costing from relevant costs and quantities.
Price Control S
Values material inventory using a standard price.
Price Control V
Values material inventory using a moving average price.
Price Determination 2
Transaction-based price determination without the single-level and multilevel Actual Costing process.
Price Determination 3
Single-level and multilevel price determination used with Material Ledger Actual Costing to calculate periodic actual material costs.
Single-Level Price Determination
Allocates eligible price differences at the individual material level.
Standard Price
A predetermined material valuation price, with differences recorded separately.