moving average price (SAP Business One)

A price that changes as a result of the movement of goods and the recording of bills changes and for the evaluation of a material.
The moving average price is calculated by dividing the value of the material by the quantity of the Materials in the inventory. It is calculated by the system after each Goods movement or invoice entry is automatically recalculated.

In SAP Business One, the moving average price (MAP) is used in particular in warehousing and inventory management. With this method, the average value of the items in the warehouse is recalculated after each goods movement (e.g. goods receipt, goods issue, transfer posting). This updated average price is then used to assess the value of the stock and the cost of goods sold (COGS) for the corresponding item.

When a new item is added to the warehouse, the purchase price is used as the first average price. With each subsequent goods receipt, the average price is recalculated by adding together the costs of the newly added items and those of the existing stock and dividing them by the total number of units in stock.

Here is a simplified example:

You have 10 units of an item in stock, valued at an average price of €10 per unit.
You buy another 10 units of the same item at a price of €12 per unit.
The new average price is calculated by dividing the total cost (10 units * €10 + 10 units * €12 = €220) by the total number of units (20). This results in a new average price of €11 per unit.

In SAP Business One, this calculation is performed automatically by the system for each stock movement, ensuring that the stock value is up-to-date and accurate.

Using this method has several advantages:

Simplicity and automationThe calculation is simple and can be carried out automatically in SAP Business One, which simplifies the management of storage costs.
Smoothing of price fluctuationsAs this is an average value, price fluctuations in purchases can be smoothed out, resulting in more stable stock valuations.
AdaptabilityThe moving average price continuously adjusts to new purchases, which enables an up-to-date valuation of the stock.

However, it should be noted that this method can lead to less accuracy in certain situations, especially if there are large price fluctuations or if the inventory turnover rate is very high. In such cases, alternative valuation methods such as FIFO (First-In-First-Out) or LIFO (Last-In-First-Out) may be more suitable, depending on the specific requirements and objectives of the company.