Purchase-Related Variance
Purchase Price Variance
Upon PO receipt, a variance is calculated that is later reflected in AP reporting. Purchase price variance (PPV) is calculated when the item’s PO unit cost does not match its standard cost (GL unit cost).
The formula for PPV is:
[PO Unit Cost - (GL Unit Cost - Overhead)] * PO Quantity Received
Negative result = favorable variance; positive result = unfavorable variance
GL Effects
At PO Receipt (5.13.1), the system debits Inventory for the item’s standard GL cost minus overhead and credits PO Receipts for the item’s PO cost. Because the two costs are different, QAD Enterprise Applications creates a balancing entry for the PPV account.
Purchasing: GL Effect
• The default general ledger entry:
Debits Inventory
Credits Applied Overhead
Debits Purchase Price Variance
Credits PO Receipts Accrual
Because this is the purchase of an inventory item, these accounts are accessed based on the product line of the purchased item-the Purchases account on the PO is not used.
When the Supplier Invoice is created (28.1.1.1), QAD Enterprise Applications calculates Accounts Payable rate and usage variances (and price variances due to exchange rate fluctuation). This is discussed in the next section.
