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.
How should a business apply Purchase Price Variance (PPV)?
Define whether the comparison uses standard cost, prior price, budget or contract. Separate currency, commodity, freight and volume effects when they drive decisions.
What records support Purchase Price Variance (PPV)?
Keep the reference price, actual transaction, quantity, currency, calculation date and variance explanation.
Purchase Price Variance (PPV): control and evidence
| 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. |
What should buyers verify about Purchase Price Variance (PPV)?
Favorable PPV can coexist with a worse total cost if quality, freight, inventory or payment terms deteriorate.
