Purchase Price Variance Allocation: Example 1

This topic describes all the documents that you would need to create and the transactions generated for the following scenario:

The Inventory Account mode is selected for allocation of purchase price variance (PPV) amounts.
Purchased items have the Average cost valuation method assigned.
All the quantities of the items remain in stock at the date when a bill is created.

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Step 1: Creating a Purchase Receipt

By using the Purchase Receipts (PO302000) form, you create a purchase receipt for the following items.

Table 1. Purchase Receipt
Item	Quantity	Unit Cost	Amount
Item1	10	250	2500
Item2	23	120	2760
Item3	15	380	5700
Total:			10960

As a result, an inventory receipt is created and released. On its release, the following transactions are generated.

Later, you receive and enter the vendor bill for the initial quantities of the items with the following information.

Table 3. Vendor Bill
Item	Quantity	Unit Cost	Amount
Item1	10	450	4500
Item2	23	120	2760
Item3	15	180	2700
Total:			9960

On release of the bill, the following transactions have been generated.

Table 4. GL Transactions Generated for the Vendor Bill
Account	Debit Amount	Credit Amount
PO Accrual	9960	0
Vendor AP	0	9960

Also, on release of this bill, an inventory adjustment has been generated with the following lines.

Table 5. Inventory Adjustment
Item	Extended Cost
Item1	2000
Item3	-3000