C Purchase Price Variance
This appendix contains the topic:
For purchased items, if the standard cost differs from the actual purchase price, you have a purchase price variance (PPV). If you use extra costs on purchased items, the total standard cost might differ from the A1 (material) cost. This difference is the material burden cost.
When you receive a purchase order, the system updates the accounts payable account using the price on the purchase order. The system updates the inventory account with the standard item cost from the Cost Ledger table (F4105). Any difference between the two costs is made up of PPV and material burden. PPV is the difference between the frozen A1 cost and the purchase order cost. Material burden cost is the difference between the total standard cost from the Cost Ledger table and the A1 cost, as follows:
PPV = A1 cost - purchase order unit cost
Material burden cost = total standard cost - A1 cost
C.1 Example: Purchase Price Variance and Material Burden
Cost Ledger Table (F4105)
Average cost = $14
Standard cost = $16
Cost Components Table (F30026)
A1 cost = $13
X1 cost = $3
Figure C-1 Purchase Price Variance and Material Burden
Description of "Figure C-1 Purchase Price Variance and Material Burden"
Material issued to the work order relieves the inventory account and posts to the WIP account with the fully loaded standard cost for the item.
Figure C-2 Material Inventory Posted to the WIP Account
Description of "Figure C-2 Material Inventory Posted to the WIP Account"
At period end, a manual journal entry closes the PPV to the Cost of Goods Sold account.
Figure C-3 Closed PPV to the Cost of Goods Sold Account
Description of "Figure C-3 Closed PPV to the Cost of Goods Sold Account"
There is an additional AAI table (4337) to handle posting of the material overhead.
If you have multiple cost extras and you want to post to different accounts for each of them, you must use landed cost.