Three kinds of variance occur during the purchasing/accounts payable cycle: purchase price variance (standard costing only), AP usage variance, and AP rate variance.

Purchase Price Variance. Purchase price variance occurs when the PO cost for an inventory item does not match its GL cost. This variance does not occur for memo items, which have no standard cost.

AP Rate Variance. AP rate variance occurs when the invoice cost for an item does not match its PO cost.

AP Usage Variance. AP usage variance occurs when the invoice quantity for an item does not match its PO quantity and you close the receiver line in the supplier invoice.