Some consultants ask me about how the Alternative Valuation Run (AVR) works in ECC, so in this blog, we are going to review how the Classic AVR works.

Let’s start by seeing what AVR is

The Alternative Valuation Run (AVR) is a tool for alternative costing based on the periodic actual quantity structures. An AVR makes a copy of the actual data of selected periods. Each AVR performs calculations on its own data copy. The main periodic calculation steps, single and multilevel price determination, are also available to the AVR. Unlike periodic actual costing, which only pertains to the special analysis of periodic data, the AVR can be used to analyze several related periods. Their quantity and value structure is summarized while the data is copied and thus leads to different results after single or multilevel price determination.

Unlike periodic actual costing, which only carries operational standard prices, the AVR offers alternative valuation rules for determining material prices.

If in periodic costing the same periodic average price is used for valuating consumption and ending inventory during single-level valuation, the AVR permits alternative allocation rules to allocate the differences to consumption and ending inventory.

Finally, in the AVR the plants taking part in multilevel price determination can be combined in an alternative way to structure the periodic actual costing, thus allowing users to get a full view of value chains that are broken down in periodic costing and a broken-down view of value chains that are end-to-end in periodic costing.

Up to 999 alternative valuation runs can be created for each period. Each of these runs works on its own data copy and administrates the results in its own data area.

Use cases:

1. Cumulation
   • Smoothing of seasonal or accidental periodic fluctuations
   • Minimizing the influence of work in progress, the period assignment problem, beginning and ending inventories
   • Credits to cost centers even during months when orders did not supply goods to stock.
   • Time windows of any length can be cumulated. At the same time, windows can be cumulated in several alternative valuation runs. In each AVR, the periods to be cumulated are defined from new and independently of other costing runs. Time windows can straddle the fiscal year-end.  If material prices or activity prices change in the course of a cumulation period, these price changes are taken into account when the data is summarized. If there are price changes, the preliminary valuation within the AVR is standardized to the price of the first cumulation period, unless the user specifies different standard prices to be used.
2. Alternative valuation
   • Performing calculations with simulated prices as an alternative to periodic actual costing.
   • Support of alternative accounting policies under IAS, US GAAP or HGB. The alternative valuation function of the AVR permits the use of parallel accounting standards with alternative material prices and activity prices, for example under HGB, IAS, or US GAAP. Price components for which legislation prohibits capitalization can be included in the calculation, and the effects of changed wage costs on the value added of finished goods can be simulated. Depending on the quantity structure, beginning inventories can also be deleted and the cost flow to production costs can be restricted for a certain period.
   • This function of being able to include any other material prices as an alternative to standard prices for valuation permits users to simulate the effect on the value added of changed raw material prices.

• Several periods are summarized during data copy, and in the AVR the summarization is performed during the cumulation step. Unless the user has defined specific rules, the summarization is performed as follows:
  • The given beginning inventory of the first cumulation period is used as the beginning inventory (BI) of the cumulation period.
  • The receipts (Re) of the cumulation period are the total of periodic receipts of all cumulation periods.
  • The cumulative inventory of the cumulation period is the total of cumulative beginning inventory and cumulative receipts.
  • The quantity and preliminary value of consumption of the cumulation period is the total consumption of all periods. The differences allocated to the consumption of consumption equal zero at the time the data is summarized. They are calculated later, during single-level price determination in line with the proportion between cumulative and consumed quantity.
  • The ending inventory (EI) of a cumulation period is the ending inventory quantity of the last period of the cumulation period. The differences are set to zero during data summarization. They are calculated later, during single-level price determination, in line with the proportion between cumulative and ending inventory quantity.
  • The cumulative ending inventory differences do not normally equal the ending inventory differences of the last cumulation period. The reasons for this are complex. The above simple example explains the difference as resulting from the simple fact that the proportion of consumed and ending inventory quantity changes periodically and does not correspond to the cumulative proportion of 450 over 300 for every period.
  • During data summarization, only the single-level differences, i.e. single-level price and exchange rate differences, are summarized. The multilevel differences are, however, set to zero and calculated later by multilevel price determination.

• The differences in the cumulative inventories are not simply the sum of differences incurred in all periods but are determined from new based on the cumulative quantity structure. In the above example, the same material is used in the production of two different products. In line with the cumulative consumption proportions of 1:1, the costs are allocated in equal proportions, and therefore more evenly than in the periodic calculation. There product A (possibly unfairly) carries most of the costs incurred, because in the same period in which the highest usage costs were incurred, the goods receipt of product A, which was decisive for the quantity, also occurred.

Alternative Valuation in AVR

• Alternative valuations can be modelled using several settings. When creating an AVR, alternative prices can be set for valuating the activity consumption. All plan prices known in cost center accounting are available in addition to the periodic actual prices. However, a plan price that is to be used in the AVR must be available in all valuation views used for calculation in the material ledger and have been specified via the material ledger type set. In addition, the activities consumed can be valuated with cumulative actual prices.
• BADI BADI_ENDING_INV can be used to valuate the ending inventories with freely definable prices as an alternative to the average price. Unless they are covered by the externally specified ending inventory valuation, the cumulative differences are allocated to consumption and charged further during price determination.

BAdI: Ending Inventory Valuation (BADI_ENDING_INV)

When you complete single-/ or multilevel price determination standard price control, the ending inventory is valuated during the period using the standard price Single-/ multilevel price determination returns differences, sometimes in rolled-up form, that are proportionally distributed, according to quantity, to consumption and the ending inventory.

Currently, you also have the option of valuating the ending inventory during single-/ multilevel price determination, using an externally entered price (with or without standard price cost component split). This means the ending inventory is assigned differences until the externally entered price is reached and the remaining differences are then assigned to consumption.

In addition to the existing solution, where you enter a statistical external price, you are now offered the new option of entering an external ending inventory value, including cost component split, that is based on dynamically calculated values

• After data summarization, which is performed during the cumulation step, the cumulative data structure can be modified by calling up BADI CKMLAVR_SIM. In this way, depending on the material type or other criteria, alternative prices can be set for revaluating the cumulative inventories and for further charging. In addition, the quantity structure can be reduced with this BADI, for example, to remove irrelevant beginning inventories, receipts or consumption from the calculation.
• For documentation of the BAdI CKMLAVR_SIM  see Note 896461 – Documentation: The BAdI CKMLAVR_SIM

If you want to know which BAdI are available within the material ledger see Note 996309 – BAdI used in material ledger – general information