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90 CHAPTER 4 The Procurement Process

MATERIAL MASTER
In Chapter 2 we explained that data in the material master are grouped into
different views that are relevant to different processes. We also examined
one view in detail, namely, basic data, because these data are applicable to
many processes. Recall that basic data include material number, description,
and weight. Please review Chapter 2 for a complete list of materials that GBI
utilizes. In addition to basic data, the views relevant to purchasing are fi nancial
accounting, purchasing, and plant data / storage.

Financial Accounting Data
Financial accounting data include the valuation currency, the valuation
class, and the price control. Valuation currency is the currency that the mate-
rials will be priced in, such as U.S. dollars or euros.
The valuation class identifi es the general ledger accounts associated
with the material. The general ledger accounts are used to maintain the value
of the inventory in stock and are updated as materials are purchased, sold,
or used in production. You may wish to review the appendix in Chapter 3
to familiarize yourself with the material accounts that GBI uses. Valuation
class provides an important integration point between purchasing and fi nan-
cial accounting because it allows the system to automatically make postings
to appropriate stock or inventory accounts in the general ledger. Typically, all
materials with similar characteristics are assigned to the same valuation class.
Consequently, all fi nancial transactions for these materials are posted to the
same general ledger account. For example, because off-road bikes and tour-
ing bikes are both fi nished goods, their transactions could be posted to the
same fi nished goods inventory account. In some cases, however, materials with
similar characteristics are assigned to different valuation classes and therefore
to different general ledger accounts. Referring back to the previous example,
the bikes could be assigned to the off-road bike inventory account and the
touring bike inventory account, respectively. Assigning materials with similar
characteristics to different valuation classes is appropriate when a company
maintains separate general ledger accounts for different materials. The last
and simplest option is to assign materials with different characteristics to the
same valuation class and therefore the same inventory account. This strategy is
appropriate when the enterprise does not need to track the value of the mate-
rials separately, as is the case, for example, with offi ce supplies.
Price control identifi es the method that is used to value the materials.
The two options for price control are moving average price and standard price.
Both options defi ne the price per unit of materials in stock, such as helmets.
In the moving average price option, the total value of the materials is divided
by the quantity in stock to determine the average price per unit. For example,
if a fi rm has 1000 helmets in stock and they cost $34,000 to purchase, then the
moving price is $34 (34,000/1,000). This price is called “moving” because it is
updated each time a process step affects the price; it represents an average
price of the materials in stock. Thus, if the enterprise purchases an additional
100 helmets for $3,500, then the new moving price increases slightly to $34.09
(($34,000 + $3,500)/(1,000 + 100)).
In contrast, standard price is constant for a specifi ed period of time and
does not fl uctuate, even when an event occurs that causes the value of the

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