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Product and Topic Expert
Product and Topic Expert

Material Ledger is a tool that collects transaction data for materials whose master data is stored in material master.

The material ledger uses this data to calculate prices to valuate these materials.

The material ledger is the basis of actual costing. It enables material inventories to be valuated in multiple currencies and allows the use of different valuation approaches.

Material Ledger as a tool fulfils two basic objectives:

  • Ability to manage material prices in multiple currencies/valuations

  • Actual costing

Multiple currencies and valuation overview

SAP Material Ledger is the multiple currency valuation. A total of three currencies and two valuation views are possible:

  • Local currency (legal valuation in the currency of company code)

  • Group valuation (corporate group valuation for reporting purposes)

  • Profit center (profit center valuation, for transfer pricing functionality, for example)

Moving Average Price/Periodic Unit Price

The moving average price is the price that changes as a result of goods movements and the entry of invoices, and which is used to valuate a material.

The periodic unit price is the price that changes within a period as a result of goods movements and invoice entries. If you have the material ledger active you can use this price to valuate a material after the closing entry at the period end.

Actual costing with SAP Material Ledger is done in three steps:

  1. Preliminary valuation at standard cost and recording of price differences

  2. Price determination: calculation of periodic unit price (PUP) for single and multilevel products

  3. Revaluation of inventory with periodic unit price (PUP)


Actual Cost Component Split (CCS)

The actual cost component split groups the actual costs into buckets across multiple manufacturing levels, providing the company with a view of the major relevant elements of the total cost, such as labor costs, raw material costs, freight costs, etc. SAP Material Ledger uses the same standard cost component structure for the cost component split at actual cost.

Having this information available for each product and plant combination enables the company to do important cost analysis more effectively by comparing actuals to standard costs, as well as understanding the breakdown of their costs with the functions provided by SAP Material Ledger.

Since actual costing information is updated at the level of the procurement alternatives and procurement processes, it's also possible to compare different sources of supply for analysis of the actual costs.

The actual cost component split that is available for the cost of goods manufactured can also be transferred to the controlling sub-module, profitability analysis.


Actual Costing - Sub-ledger

Material Ledger/Actual Costing is a Sub-Ledger like AP, AR, Fixed Assets.

Material Ledger/Actual Costing Subledger do:

  1. Inventory Valuation/revaluation,

  2. Visibility of Price changes,

  3. Updating Standard Cost with Actual Prices (optional),

  4. Periodic Unit price, etc.


What changes in S/4Hana?

  • Data Model Changes

  • Material Ledger is mandatory (not Actual Costing)

Additional Key Considerations:

  • Separate currency customizing of Material Ledger (transactions OMX2 / OMX3) is now mandatory. The Material Ledger acts on the currencies defined for the leading ledger in Financials.

  • Default Material Ledger Type “0000” is not used anymore.

  • Customizing in Financial applications allows you to assign more than three currency and valuation types as being relevant to your company code. As the Material Ledger still supports only three currency and valuation types, it is No longer allowed to use an ML Type that references currency settings defined in FI or CO (flags “Currency Types From FI” and “Currency Types from CO”). Instead, you have to explicitly define the currency and valuation types that are relevant to the Material Ledger.

  • Material ledger can be implemented at any time but of course, should be starting at any period. Ideally, it's advisable to implement on the first day of the fiscal year but still, it's not a hassle to do it in a period other than the start of the fiscal year.

  • Material ledger is a parallel ledger for the inventory valuation & it helps you to calculate the material price with loading variances. If you implement it within the fiscal year then you could carry on with the material ledger closing activities for the periods & keep accumulating the variances. Once you reach the last period of the Fiscal year you can settle your variances over the inventory & this is how you can start your new fiscal year with prices calculated by the material ledger. (remember, settlement of variances is still NOT a mandatory step & it's a choice of the customer)

  • Before you implement the material ledger, do a thorough thought process because once it's implemented, it's nearly impossible to step back.


Set up calculation for the purchase account

In this step, you define for each valuation area if the purchase account should be posted with the same amount as the stock account (stock value) or with the same amount as the GR/IR clearing account (receipt value).

This means that if you check this box the purchase account should be posted with the same amount as the Good Receipt /Invoice Receipt clearing account (this is receipt value).

if  this box is empty this means that purchase account should be posted with the same amount as the stock account (this is stock value)

In case: you have not ticked the receipt value, and now you need to activate the valuation with the receipt value. And you ask me, How do we do for the cutover? When we should do that? Do we need to rework all the history postings?

I would always suggest having any change impacting Material Ledger from the beginning of the year.  You can add a date (which is the beginning of the year) in the configuration itself.  This will ensure you don’t have reconciliation issues.  As such, there should be no risk either way because it is only an additional journal entry with debit and credit posted to the Purchase account and Purchase offsetting account. You don’t need to rework the history posting.


Some References:

2436214 - Stock valuation with active Material Ledger

3012673 - FCML4H_MLCCS_STARTUP - subsequent activation of actual cost component split in S/4 HANA

I recommend this course below if you are a beginner in Material Ledger/Actual Costing.


Thank you very much for your time, I hope this information has been useful to you.