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Dear Shinu,
Hope Mr.Vidhyadhar has explained enough regarding FIFO and MAP. I just add
few words to make it little precise i.e
FIFO (First in first out) is a method the price you purchased your product
and at the time of consumption it will go out on same rate.
Bought 10 Units by @rs.10/= 100
thereafter you bought 2 Unit by rs.12/-= 24/-
Now say you are consuming 11 nos of Unit at a time then consumption price
will be 100(10x10) +12(1x12) = Rs.112/- in FIFO.
But in case of MAP (moving average price/ moving weighted price) it will
be average rate like total price Rs.124 / 12 (total unit)=Rs.10.333 and
then 11 Unit X 10.333=Rs.113.663/- (here decimel is taken as per your Org
decision). This is the calculation part.
And you are getting the difference price of MAP & FIFO inventory valuation
method i.e one is 113.663/- & another is 112/-. Now choice is yours.
Hope now it will be clear and value added since I wrote this logic in
different ERP application I just shared the logic.
Thanks
SG
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"VidhyaDhar via sap-acct" <sap-acct@Groups.ITtoolbox.com>
27-09-2010 08:57 AM
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Subject
Re: [sap-acct] FIFO and Moving average Price ?
Posted by VidhyaDhar (User-friendly SAP FI Consultant)
on Sep 26 at 11:25 PM
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Hi Shinu
As you can see further Valuation depends on the market rates of prices of
commodities, in general. A volatile market has a great impact on valuation
of materials which in turn has a domino effect on ascertainment of profits
and valuation of stocks. The impact of valuation is also largely dependent
on the consumption pattern.
FIFO:
If prices are increasing steadily then FIFO makes valuation of inventories
more in line with the current trend of prices. However, it is likely that
profit ascertainment could be affected. If prices are falling then also
valuation of inventories is more up to date . Valuation of profits uses
historical costs matched against revenues which depends on the price
pattern
and consumption pattern over time.
MAP:
Since you average out all costs across your inventories, your inventory
valuation and profitability is ironed out at average prices which makes
evaluation a bit more arithmetic. However, it is likely that consumption
and inventory valuation is unlikely to be historical or trendy since you
average out everything. However, the average values hover midway between
historic prices and trendy prices. This imparts an evenness of valuation.
Regards
VidhyaDhar
On Mon, Sep 27, 2010 at 8:27 AM, VidhyaDhar via sap-acct <
sap-acct@groups.ittoolbox.com> wrote:
> Posted by VidhyaDhar(User-friendly SAP FI Consultant)
> on Sep 26 at 10:58 PM Hi
> Shinu
>
> Let us try learning the basics of FIFO and MAP through a basic example.
>
> Every object in the business world requires to be valuated against money
> and reported in a fair and equitable manner. Inventories are also
objects
> which require to be valuated. Since many factors affect such valuation
in a
> volatile manner over time valuation becomes a continuous process.
>
> There are many methodologies for valuing inventories out of which FIFO
and
> MAP are two methods.
>
> Let me give you a little example:
>
> You bought an object Yesterday @10 USD and kept it in store. Today you
> bought one more such piece but @ 12 USD since the market price of the
same
> has increased since.
>
> Let us also assume that you consumed one of the two objects was
consumed.
>
> How would you value the item consumed and the item which is still in
stock?
>
>
> The total value of stock prior to consumption of one of the units is
> 2 SKU (stock keeping units) with a value of 22 USD ( 1 SKU @ 10 USD 1
SKU @
> 12 USD )
>
>
> If issue of 1 SKU happens then the issue is valued @ 10 USD under FIFO
> method. That would mean that the balance 1 SKU is valued @ 12USD
>
> If you adopt the MAP method you would equi-distribute values across the
> stock keeping units ( 22 USD / 2 SKU ) as 1 SKU=11USD
>
> Thus values are equi-distributed as Issueof 1 SKU @ 11 USD and the
balance
> of 1 SKU of stock also @ 11 USD.
>
> Hope this is helpful.
>
> Regards
>
> VidhyaDhar
>
>
>
>
> ---------------Original Message---------------
> From: Shinu
> Sent: Friday, September 24, 2010 3:09 PM
> Subject: FIFO and Moving average Price ?
>
> > What are the main difference of FIFO and Moving Average price of
material
> valuation in SAP.
> > My Client follows FIFO and now in SAP it suggests MAP.
> > So now we have to convince the client the merits or advantages of MAP.
> >
> > Can anyone explian.
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