Inventory Standard Cost Variances
In general, Inventory records purchase price variance (PPV) and recognizes cycle count and physical inventory adjustments as variances.
Purchase Price Variance (PPV)
During a purchase order receipt, Inventory calculates purchase price variance. In general, this is the difference between what you pay the supplier and the item's standard cost. Inventory calculates this value as follows:
Inventory updates the purchase price variance account with the PPV value. If the purchase order price is in a foreign currency, Inventory converts it into the functional currency of the inventory organization and calculates the purchase price variance. Purchasing reports PPV using the Purchase Price Variance Report. You distribute this variance to the general ledger when you perform the general ledger transfer, or period close.
Invoice Price Variance (IPV)
In general, invoice price variance is the difference between the purchase price and the invoice price paid for a purchase order receipt. Purchasing reports invoice variance. Upon invoice approval, Payables automatically records Invoice Price Variance, to both invoice price variance and exchange rate variance accounts.
Cycle Count and Physical Inventory
Inventory considers cycle count and physical inventory adjustments as variance.
You distribute these variances to the general ledger when you perform the general ledger transfer or period close.
See Also
Overview of Period Close
Inventory Standard Cost Transactions
