Example: Price and Exchange Rate

Differences 

Example 1With the material price analysis, you can interpret how price and exchange rate differences arise under the

categoryReceipts.

1 Initial inventory

In Period 1, there is a beginning inventory of 10kg of the raw material cocoa in the warehouse that is

valuated with the standard price of 20 Mexican pesos (Mxn).

2 Goods Receipt

In the same period, a purchase order is placed for 20kg of cocoa in the foreign currency US dollars (USD).

The goods receipt of 20 kg of cocoa takes place at a price of 2.1 USD with an exchange rate of 1USD: 10

Mxn. 20 kg of cocoa costs 42 USD or 420 Mxn. 400 Mxn are posted to the material stock account and 20 Mxn

to the price difference account.

3 Invoice Receipt

At invoice receipta kilogram of cocoa costs 2.2 USD.

The increase in the price of cocoa causes price differences to arise, and fluctuations in the exchange rate (at invoice receipt

1USD is 11 Mxn) cause exchange rate differences to arise. At invoice receipt 20 kg of cocoa costs 44 USD or 484 Mxn. At

invoice receipt 22 Mxn are posted to the price difference account and 42 Mxn are posted to the exchange rate difference

account.

 

In the material price analysis, the following values are displayed for Period 1.

  Quantity

Preliminary valuation

Price differences

Exchange rate differences

Price

1Initial inventory

10 kg 200 Mxn 0 0 20 Mxn

ReceiptsProcurement2 Goods receipt 3 Invoice receipt

20 kg20 kg20 kg0

400 Mxn400 Mxn400 Mxn0

42 Mxn42 Mxn20 Mxn22 Mxn

42 Mxn42 Mxn042 Mxn

24.2 Mxn24.2 Mxn21 Mxn0

Other inward/outward movements

0 0 0 0 0

Cumulated inventory 30 kg 600 Mxn 42 Mxn 42 Mxn 22.8 Mxn

Consumption 0 0 0 0 0

Ending inventory 30 kg 600 Mxn      

*The price is calculated as follows:

(Preliminary valuation + price differences + exchange rate differences)/ quantity = price

See also:

Displaying Material Price Analysis

Postings:

Postings are made to the following accounts:

No. Periods

Inventory

Price differences

Exchange rate differences

GR/IR clearing account

Vendor account

123

1 200400

 

2022

 

42

 

420420

 

484

 

The gross invoice amount without tax is calculated as follows:

2.2 USD/kg * 2.2 USD/kg = 44 USD 

Translation is carried out through invoice verification at the current exchange rate: 

44 USD * 11 Mxn/USD = 484 Mxn

The price difference in the local currency Mxn at goods receipt is calculated with the exchange rate

at the time of goods receipt:

Price difference at goods receipt = price at goods receipt * goods receipt quantity - standard price* goods receipt quantity

or

20 Mxn = 420 Mxn - 400 Mxn

or

(2.1 USD/kg *10 Mxn/USD-20 Mxn/kg) * 20 kg = 20 Mxn

The exchange rate difference in local currency Mxn at invoice receipt is the difference between the

valuation of the goods receipt with the old and new exchange rates:

42 USD * ( 11 Mxn/USD – 10 Mxn/USD) = 42 Mxn

The price difference in local currency at the time of invoice receipt is the difference between the invoice

amount and the total from the valuation of the goods receipt and the exchange rate:

Price difference at invoice receipt = price at invoice receipt - price at goods receipt - exchange rate difference or 22 Mxn = 484 Mxn - 420 Mxn - 42 MxnThe 22 Mxn is the price difference in purchase order currency, in this case USD, translated at the current exchange rate:20 kg * 0.1 USD/kg * 11 Mxn/USD = 22 Mxn