How is stock valuated in SAP - Part 1

You've seen the accounting tab of the material master. There's something called as valuation class. What is valuation class and how does it affect the value of the material? And I said, for price control, select V, typically for all materials that are procured. Not manufactured. All materials that are procured have a price control of V. And what is V? V stands for moving average price. Or maybe you could call it weighted average or it's all the same thing. It's averaged out every time we procure. We're going to talk about it. So why don't we do something? Let's create a material. Set the moving average price to zero by default. Then start issuing some POS and see the difference. So we're going to do zero one. Let's create a brand new material. Coffee beans instead of zero three, Let's call it zero six. So that, you know, it's we know that this is a different material and it's just starting off retail sector and it's a raw material, right? So hit enter and we are only interested in three views basic data purchasing, data accounting data. Hit. Okay. And for plant, as usual, we use the Chicago plant. And the coffee beans or bags, whatever. Found. Material group is food. Hit enter. And purchasing group is yours. One hit Enter. And finally, the valuation class is 3000 and price control is we v four moving average. And if you look at the possible options there, you'll see two different values S for standard price V for moving average price. And like I said, for all materials that are procured externally, always use V. V for moving average. All right. So we're done with that. We're going to hit save. It's going to issue a warning. Ignore that. Click. Okay. All right. Coffee beans oh six is created. And of course, if you go back to coffee beans. Hit, enter and go to the accounting view. Enter plant Chicago one. You'll see that the total stock is zero. The moving average price is zero and the total value is zero. So nothing has been procured. We don't have stock yet. And the average price of the moving average price is zero. So let's keep this screen right there and go open another screen and do a purchase order. M 21 N All right. It doesn't matter which vendor you select some vendor. And of course the purchaser of US zero one Some purchase group and company code US zero one. Select coffee beans, not oh three, but oh six. The material that we have just created and we're going to do a quantity of one. Just one. Of course use a plant. Chicago one. Enter. And we're going to put a price of $10, right? And hit save. Okay. A purchase order is created. Let's go quickly. Save. Control. C If you go back to the other window, you'll see that nothing has changed here. If you want to see the changes, the screen doesn't refresh automatically. So if you want to see the changes, you got to go back. And then. Hit Enter again. Go to Accounting view. Enter Chicago one. Hit. Enter. So that's how you refresh for changes. But over here, nothing has changed. The stock remains zero. Value remains zero. Moving average price remains zero. So that means so irrespective of the number of purchase orders that you created, the value does not change. But when does the value change? Value changes during goods receipt. That's when we have received the goods, the physical inventory and the stock goes up and a whole bunch of changes happen. Let's go do a good seat. What's a good seat? All right. The transaction for goods receipt is meager. So go to my go. Enter your purchase order Control V. And the storage location. Raw material. Make sure to click item. Okay. So we are receiving a quantity of one or the price that we have seen in the purchase order. $10. Click save. So material document is created. That means we have completed the process of receiving the goods. Go back to the other screen, the material master screen. Start all over again. Accounting one. Chicago one. Do you see that the moving average price or the moving price has changed to $10 and the total value is $10 and the total stock is $1? So as soon as you finish, the goods receipt is automatically updated. The material Master. With what? With the price, the quantity and the total value. The total value is really simple, right? Price multiplied by the total stock gives you the total value. So let's catch up with the slides. So what have we done here? We have created a material master for zero six. Set the price control to V. And of course, since we are creating this material for the first time, the moving average price is zero and the total value is zero, total stock is zero, everything is zero. The first step that we have done is create a. And when we created the PO after you saved it, you went back to the material master. Nothing has changed. And after that you have done the goods receipt. So when you have done the goods receipt, that's when the price has changed. The price changed. The stock changed and the total value changed. The total value is basically a multiplication of this and this. So if you multiply both these fields. You get the total value, right? So if you do another purchase order at a price of $10 per kilo or pound, the effective average price is going to remain the same. Right? So that scenario is simple. You can do it in your system and see the effect of it. The average price does not change the quantity and value changes, obviously. But what if the price changes in the next purchase order? Again, let's do a purchase order. This time let's do it for a quantity of two. All right. And then. We're going to do it for Chicago. Instead of a price of $10, let's do $20. Okay. And then hit save. Save your purchase order. Ctrl C copy your purchase order. Go to go do goods receipt against that purchase order, do an item. Okay. And click save. Let's go back to the material and see what happens. In the material Master. Go back and come again. Select the accounting view. Click. Okay. Select Chicago One Plant. And what happens here? The stock has changed to three, which is right. The first order was for a quantity of one. The second order was for a quantity of two. So one plus two equals three. What's the total value? The total value is a multiplication of 16.67 multiplied by three. So let's see if that is correct. Open a calculator. And say 16.67 multiplied by three. That's 50. Right. The system seems to have calculated everything, right? Now, the question you might have is how did it arrive at a price of 16.67? The moving average price. What's the formula used to arrive?