About purchase price variance
Purchase price variance calculation
This difference may have various causes, such as changes in the delivery costs.
When you create a purchase receipt in the Purchase receipts (PO302000) window, you will normally enter estimates for the prices of the items in the receipt, since you do not know their actual prices. When you create the related purchase invoice in the Purchase invoices (AP301000) window, you do know the actual prices and any additional costs, and can enter these on the invoice.
When you release the purchase invoice, the system calculates the purchase price variance for each line item as the difference between the total cost of the item on the purchase receipt and the total cost of the item on the invoice.
The item cost on the purchase receipt depends on the cost valuation method assigned to the item. The ways in which the calculated purchase price valuation can be allocated depends on the selected item cost valuation method and allocation mode for the stock item.
Purchase price variance valuation methods and allocation modes
Valuation methods for stock items are set using the Valuation method field in the Stock items window.
If a stock item has been assigned the valuation method Standard, the purchase price variance amounts are allocated to the standard cost variance account defined by the posting class of the item.
Purchase order preferences (PO101000)
If a stock item has been assigned the valuation method Average, FIFO, or Specific, you can select one of the following modes of purchase price variance allocation in the Purchase order preferences (PO101000) window:
- Inventory account
- Select this allocation mode to register the variance to the inventory accounts and thereby update the item costs. If you select this mode, you must also select a reason code that provides the expense accounts and subaccounts used for the purchase price variance allocation. For examples on how to use the Inventory account allocation mode, see Purchase price variance allocation - example 1 and Purchase price variance allocation - example 2.
- Purchase price variance account
- Select this allocation mode to register the variance to the purchase price variance accounts defined by the posting class of the item.