sap material moving average price vs standard price

The standard price/moving average price in material master is used to valuation/determine the value of your inventory. The price on the purchase order is the base price that you actually pay for the inventory. The purchase order price should be pulled from the info record. These can
sometimes be out of sync. If the material is valued at a standard price, the difference between the purchase order price and the standard price will go to a price difference account. If the material is valued at a moving average price, the difference between the purchase order price and the moving average price will NOT go to a price difference account. The moving average price will simply be adjusted.

We use a simple rule of any material purchased externally is valuated at a moving average price. Anything produced internally and placed into inventory is valuated at a standard price across all plants.

Generally all raw materials (ROH), spare parts (ERSA), traded goods (HAWA) etc. are assigned as moving average price (MAP)  because of the accounting practice of accurately valuating the inventory of such materials. These materials are subject to the purchase price fluctuations on a regular basis.
Company generally use moving average on purchased materials with small cost fluctuations.  It is most appropriate when the item is easily obtainable.  The impact on margins are minimized which reduces the need for variance analysis.  Furthermore, the administrative effort is low as there are no cost estimates to maintain.  The cost reflects variances, which are closer to actual costs.
The semi-finished goods (HALB) and finished products (FERT) are valuated with standard price because of the product costing angle. If these were to be MAP controlled, then finished/semi-finished product valuation would fluctuate due to data entry errors during backflushing of material and labour, production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice.
Refer to OSS note 81682 - Pr.Contr.V for semi-finished and finished products.
SAP recommends that standard price to be used for FERT and HALB. If actual price is required for valuation, make used of the functions of material ledger where a periodic actual price is created which is more realistic.
e.g. how SAP calcualte the moving average price
Goods Receipt for Purchase Order
Balance on hand quantity + Goods Receipts quantity
Balance on hand value     + Goods Receipts value
New Moving Average Price = Total Value / Total Quantity
Invoice Receipt for Purchase Order
Invoice price more than Purchase Order price

• additional value add to Balance on hand value then divided by Balance on  hand quantity

Invoice price less than Purchase Order price

• difference is deducted from the Balance on hand value (up to 0).  The rest of the amount will becomes price variance.  This will result in Balance on hand value is zero while there are Balance on hand quantity.  If the Balance on hand value is enough to deduct, then the remaining value will be divided by Balance on hand quantity.

When your Goods Issue price is constantly greater than your Goods Receipt price, it will result into zero value moving average price.

OSS note
185961 - Moving Average Price Calculation.
88320 - Strong variances when creating moving average price.
Never allow negative stocks for materials carried at the moving average.

Valuation with Moving Average price:

In the following example, inventory is valuated with the moving average price. The system analyses how stock coverage and stock shortage affect prices.
For more information on the standard price and moving average price, see Price Control with and without the Material Ledger
Problems with Stock Coverage
Example 1:
Stock Coverage at Goods Receipt

1. In the current period, there are a number of goods receipts for a material that is valuated with the moving average price:

Goods receipt 1: 100 pieces at $1/pc.

Goods receipt 2: 100 pieces at $1/pc.

Goods receipt 3: 100 pieces at $1/pc.

Valuation data for the material:

Inventory quantity: 300 pieces Inventory value: 300 Moving average price: $1

2. A goods issue occurs for 180 pieces of this material.

Valuation data for the material:

Inventory quantity: 120 pieces Inventory value: 120 Moving average price: $1

3. In the invoice receipts for the goods receipts above, the invoice price varies from the purchase order price in all three cases:

Invoice receipt 1: 100 pieces at $1.20/pc.

Invoice receipt 2: 100 pieces at $1.20/pc.

Invoice receipt 3: 100 pieces at $1.20/pc.

Because in all three cases there was adequate stock coverage at the time of the invoice receipt (inventory quantity is at least as large as the invoice quantity), the price variances from all three invoices are completely debited to inventory. In total, the remaining inventory quantity is debited with a variance of $60. The individual orders do not check whether the remaining inventory quantity is also debited by other orders

Valuation data for the material:

Inventory quantity: 120 pieces Inventory value: $180 Moving average price: $1.50

The result is an excessively high valuation price for the material stock and subsequent material consumption, as all price variances from the various goods receipts flowed into the price.

Example 2:
Stock Coverage at Order Settlement
During the settlement of variances on manufacturing orders, the system checks whether a corresponding stock coverage exists for the respective material. If multiple manufacturing orders were completed during a period and the material stock at the end of the period is smaller than the sum of the receipts from production orders, variances from all production orders are allocated to the material stock, assuming adequate stock coverage.
The individual orders do not check whether the period ending inventory was already debited with variances from another order!

1. One piece of material FERT is produced per day for 10 days in one period and delivered to stock at a price of $100.

Valuation data for the material:

Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD

2. There is only 1 piece left in material stock at period end. A variance of $10 is calculated for each production order. Each individual production order checks stock coverage and determines that the variances can be posted completely to stock.

Valuation data for the material at period end:
Inventory quantity: 1 piece Inventory value: 200 USD Moving average price: 200 USD

The ending inventory of 1 piece is debited by $100 and the moving average price for material FERT becomes $200.

Thus, the remaining material inventory is charged with variances that it didn't even cause, resulting in an unrealistic price. Subsequent consumption is also valuated using this inflated price. The material stock value no longer reflects the actual cost of goods manufactured.

The system reacts differently if it discovers a stock shortage.
Problems with Stock Shortage
Example 3: Stock Shortage at Invoice Receipt
If the invoiced amount of an externally procured material is less than the amount with which the goods receipt is valuated, the invoice receipt should correct the material price by reducing the value of the material stock. If, however, there is a stock shortage at the time of the invoice receipt, the stock value is only reduced proportionally; the remaining amount is posted to the price difference account in Financial Accounting.
Example 4: Stock Shortage at Order Settlement
Goods Receipt for the Order:

1. One piece of material FERT is produced per day for 10 days in one period and delivered to stock at a price of $100.

Valuation data for the material:
Inventory quantity: 10 pieces Inventory value: 100 USD Moving average price: 10 USD

2. There is 1 piece left in material stock at period end. A variance of $10 is calculated for each production order.

The variances of a manufacturing order, 100 USD, should be settled with a lot size of 10 pieces. There is only 1 piece of the material left in stock.

Thus, the material stock is only partially debited (with 10 USD).

Valuation data for the material:
Inventory quantity: 1 piece Inventory value: 20 USD Moving average price: 20DM Price difference account: 90 USD
No Goods Receipt for the Order:
If variances were calculated for a manufacturing order in one period even though there were no goods receipts for that order in that period (such as with follow-up costs) the entirety of these variances are posted to the price difference account. Here, it cannot be guaranteed the material stock value reflects the actual position.