The purchase price of any material or service in SAP MM is calculated using a feature called pricing conditions. Based on various input price components like taxes, transportation cost, rebates, reward points, seasonal discount etc., the effective price is calculated from adding or subtracting these price components from the gross price. There is a complex calculation schema maintained in SAP which does the calculation based in whether a cost component will apply to the calculation. For example, a plant is located in a state where the local tax applicable is 8%. In another plant located in another state, the local tax is 9%. So when effective cost is calculated for these 2 plants, they will differ by the tax rate applicable even though other price components may be same. Similarly transportation cost may be different for 2 plants as the distance from the vendor site to the plants may be different.
Sometimes, a promotion discount is applicable only for a certain locality and not applicable to all other localities. In this situation, the promotion discount cost component will be applied for a particular plant which falls in the promotion area but not to other plants which do not fall within that promotion area.
To deal with all kinds of situations, SAP MM has a calculation schema for calculating effective and net price for any material or service. each price component is known as condition type in SAP. These Condition types are put in an access sequence in the database. Each calculation schema has its own access sequence. When a net or effective price is computed by the system, entries in the access sequence are looked up sequentially. If a condition type (price component) is not in the access sequence then that component is not considered for calculation and is skipped. Otherwise, the price component is considered for price calculation.
This is how SAP calculates net and effective price for any material or service. The access sequence is maintained by purchase department of the company and all the price components are provided to them by vendor and other departments.