Definition
Purchase price variance (PPV) is the difference between the standard cost of an item and the actual price paid for it, recorded when goods are received.
What is purchase price variance used for?
PPV applies under standard costing, where stock is held at its standard. Paying more than standard gives an unfavourable variance; paying less gives a favourable one. Tracking PPV shows buying performance and whether standards need updating. The formula is (actual price − standard price) × quantity received.
An unfavourable variance
Example- Standard price
- USD 120
- Actual price
- USD 126
- Quantity received
- 200 units
PPV: (126 − 120) × 200
USD 1,200
PPV is often confused with invoice price variance, which compares the supplier’s invoice with the purchase order price.