Purchase price variance, or PPV, measures the difference between an actual purchase price and a standard, budgeted or other reference price for the quantity purchased. The chosen reference controls the meaning.
The operating decision
Define whether the comparison uses standard cost, prior price, budget or contract. Separate currency, commodity, freight and volume effects when they drive decisions.
What to keep
Keep the reference price, actual transaction, quantity, currency, calculation date and variance explanation.
| Area | What the record should show |
|---|---|
| Control | Define whether the comparison uses standard cost, prior price, budget or contract. Separate currency, commodity, freight and volume effects when they drive decisions. |
| Evidence | Keep the reference price, actual transaction, quantity, currency, calculation date and variance explanation. |
| Tradeoff | Favorable PPV can coexist with a worse total cost if quality, freight, inventory or payment terms deteriorate. |
A practical limitation
Favorable PPV can coexist with a worse total cost if quality, freight, inventory or payment terms deteriorate.
Related definitions: cost savings, cost avoidance, total acquisition cost.
