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If you use transfer prices to represent value flows in your company in different valuation
views, you need the material ledger. It allows you to carry your inventories in three
different valuations: legal valuation, valuation for reporting purposes, and profit center
valuation.
Actual Costing – Helps in determining actual costs for externally procured materials and
materials produced in-house. Also actual costing uses actual costs to valuate inventories
of raw materials, semi-finished products, and finished products.
Actual costing calculates an actual price (periodic unit price) for each material, into
which all actual costs for the particular period flow.
Actual costing valuates all goods movements within a period at the standard price
(preliminary valuation). At the same time, all price and exchange rate differences for the
material are collected in the material ledger.
An actual price is calculated for each material based on the actual costs of the period.
This actual price is called the periodic unit price and can be used to revaluate the
inventory for the period to be closed. This actual price can be used as standard price for
next period.
Portion of variances can be allocated to the next highest level of production only. If the
consumption of materials is assigned directly to CC or IO, variances corresponding to
this part of consumption cannot be transferred to these cost objects and remains in the
price difference account only.
All materials consumed for a production process within the current month are processed
in the withdrawal period, even if part or all of the delivery of the material to the
warehouse takes place in a later period. Any price differences for the consumed materials
or activities are, therefore, completely accounted for in the production for that month.
• If no delivery has taken place, the price difference remains as "not included" in
the accounts for the material or cost center.
• If a partial delivery has been made to the warehouse, the price differences for all
components and activities withdrawn are allocated to this partial delivery. This
could lead to an unrealistic actual production price for the finished good.
• Differences between the plan and actual prices are only calculated for the delivery
for the period concerned. If incorrect deliveries are made, the costs remain
assigned to the cost center.
The WIP account is still valuated using the standard prices for the materials and activities
consumed. A revaluation using actual prices does not take place.
Valuating the inventories with the periodic unit price provides a method of valuation
using actual costs while avoiding problems associated with using the moving average
price. Actual Costing combines the advantages of price control using the standard price
with the advantages of the moving average price. The period dependency of the actual
price supports periodic cost management.
Revaluating inventories at the end of the period with the periodic unit price is optional.
The Actual Costing/Material Ledger component therefore does not just collect and
calculate actual costs; it also tracks variances against the standard costs.
For Whom
a. Businesses that use a large number of raw materials with production processes
that have multiple levels.
b. Businesses that have high inventory levels and are interested in analyzing their
inventory and consumption cost variances more closely.
c. Actual costing can aid you in making decisions such as whether to make or buy.