Purchase Price Variance

The unit cost of a line item on an AP voucher can sometimes differ from the unit cost of the associated line item on the originating purchase order.

The Purchase Price Variance (PPV) is the difference between the purchase order line unit cost of an item and the unit cost entered on the associated line item on the AP voucher.

The following purchase order line types can generate a PPV:

Item
Blanket Order
Capital Equipment
Description
Category

An increased unit cost results in a positive variance and a decreased unit cost results in a negative variance.

Causes of PPV

The causes of PPV can include:

A difference between the actual cost of an item and its current market value
A shortage of a specific item which has driven up costs
Increased shipping costs
Changes to purchasing volumes
Revised vendor cost structure

PPV Calculation

The following fields are used to calculate PPV:

Unit Price - from the AP voucher line.
Unit Cost - from the purchase order line.

Unit PPV

Unit PPV = Unit Price - Unit Cost with Options.

Total PPV

Total PPV = Unit PPV x Quantity Vouchered.

The following is an example of how PPV is calculated:

The original purchase order line is for a quantity of 100 items with a unit cost of $111.00.

The invoice is received and the associated AP voucher is created.

When the AP voucher line is created, the AP voucher Line Unit price entered is $114.00.

The Unit PPV is $3.00.

The Extended PPV (Unit PPV x Quantity) is $300.00.

The associated payable invoice (PIN) displays the new price of $114.00.

The PIN will debit the AP Liability account in the GL account and will credit the Accounts Payable (AP).

PPV Journals

After matching an AP voucher with PPV, an inventory transaction perpetual record (ITPR Closed Inventory Transaction Perpetual Record. Historical records that allow you to track transaction history arising from acquiring, managing and selling inventory items. You can track information such as who was involved in the transaction, what the transaction was for, when, where it took place and why. You can also view Inventory Transaction Perpetual Records from the Perpetual with Financial report.) of type PPV is created with two associated inventory transaction financial records (ITFR Closed Allow you to track the financial transactions arising from acquiring, managing and selling inventory items. You can track information such as who was involved in the transaction, what the transaction was for, when and where it took place and why. This information can be sent to financial systems such as Accounting. You can also view Inventory Transaction Financial Records from the Perpetual with Financial report.). These two ITFRs are created with a GL account value of PPV and AP Liability, respectively. The generated transactions are used to create a PPV journal in Accounting when you push the matched AP voucher. This PPV journal reflects the unit cost changes for accounting purposes. A PPV journal can be created for any of the purchase order line types listed above.

Note: If an AP voucher line is associated with a category purchase order line, the GL account for the PPV ITFR is taken from the Purchase Analysis GLA for Category field on the product group which is used as a category for the purchase order line. The same GL account is used for the PPV journal line created from the ITFR.

Tracking Purchase Price Variance

You can track PPV Closed Purchase Price Variance when purchases are complete to enable you to detect and assess pricing issues.

The PIN will debit the AP Liability account in the GL account and will credit the Accounts Payable (AP).

A journal entry will be created to post the PPV to the Accounting GL account.

The account listed as the AP liability in the GL accounts will be debited if the invoiced price is above the purchase order price or credited if the invoiced price is below the purchase order price.

The offset will go to the GL account listed in the GL accounts table for PPV.

When the items are received into inventory the following journal entries are created:

Debit the Inventory GL inventory.
Credit the GL account listed in the GL accounts for AP liability. (for this example - $111 x Quantity).

Overriding the AP Voucher Period

When an AP voucher is created, its accounting period is calculated from its creation date. The AP voucher period can be overridden manually and the revised period will carry over to: