What are the calculations of Purchase Price Variance?

[accounting lads]

Purchase Price Variance is calculated by using the formula:
PPV = [ (Standard Price- Actual Price )] x Quantity purchased
In the example, the actual price paid of a component amount to 12 dollars, the standard price is 10 dollars, and the number of units ordered is 1000, this means:
PPV = (10 12) 1,000 = -2,000
This presents a negative variance of 2,000. The estimating of PPV allows companies to know when and where they overpaid or underpaid so that further decision on the procurement and pricing strategies can be done accordingly.

Source: https://accountinglads.com/purchase-price-variance/

[Author]

Posts