What does PPV mean in ACCOUNTING
Purchase Price Variance (PPV) is a term used in accounting to quantify the difference between cost of goods purchased and actual cost of those goods. PPV provides an indication of overall cost savings for a business across all its purchased products. It can be calculated on both a monthly and annual basis to help measure the company's success at reducing costs associated with purchases.
PPV meaning in Accounting in Business
PPV mostly used in an acronym Accounting in Category Business that means Purchase Price Variance
Shorthand: PPV,
Full Form: Purchase Price Variance
For more information of "Purchase Price Variance", see the section below.
» Business » Accounting
Definition
Purchase Price Variance (PPV) is defined as the difference between what was originally budgeted to spend on a certain item and the actual amount spent on that item. This variance indicates how successful or unsuccessful a company has been in controlling costs related to purchases.
Calculations
Calculation of PPV involves subtracting the Actual Cost of Purchases from the Budgeted Cost of Purchases, which results in two different numbers depending on whether or not prices are higher than expected (negative variance) or lower than expected (positive variance). The larger the positive variance, the better it is for a company’s bottom line.
Uses
Utilizing Purchase Price Variance can assist businesses in determining if they are paying too much or too little for their products or services when compared with their budgeted amounts. In addition, it can be used to analyse purchase trends over time and compare purchasing performance between departments or suppliers as well as identify opportunities to reduce spending on certain items.
Essential Questions and Answers on Purchase Price Variance in "BUSINESS»ACCOUNTING"
What is Purchase Price Variance (PPV)?
Purchase Price Variance (PPV) is a variance between the actual purchase price of materials and the standard price established in contracts and material specifications. It measures the difference between the forecasted cost of purchased materials and their actual cost when received.
How can I calculate PPV?
To calculate PPV, you need to subtract the actual purchase price from the standard or budgeted cost for that material. The result of this calculation shows how much money was overpaid or underpaid for the given material, compared to what had been expected.
When should I consider PPV?
You should be tracking your PPV on a regular basis to ensure that your company does not overspend for its materials purchases. This is especially important when raw materials are being purchased in bulk as any discrepancies between standard costs and actual prices could have a significant impact on total company expenses.
What are some potential causes of PPV?
Possible causes of PPV can include incorrect forecasting, changing market prices, unexpected demand, miscommunication between purchasing agents and suppliers, currency fluctuations, promotions offered by suppliers, etc.
How can I reduce PPV?
Some strategies to help minimize or eliminate PPV would be to better forecast requirements on large purchases; negotiate with vendors for more competitive pricing; create contracts with negotiated prices or minimum guaranteed stock levels; request quotes from multiple vendors to compare offers; track supplier discounts; monitor currency exchange rate trends; and stay abreast of new industry trends.
What tools are available to help me manage my PPV?
There are software solutions that are designed specifically to help companies calculate their purchase price variance and monitor their purchase costs over time. These tools enable companies to identify areas where they may be overpaying for certain products so they can adjust their purchasing strategy accordingly.
Are there any risks associated with not managing my PPV?
If your company fails to keep track of its purchase price variance then it can easily lose control of its overall procurement costs which may lead to higher than expected expenses across the board. As such, it is important that companies monitor their PPV closely so they do not inadvertently overspend for raw materials or other business-related purchases.
How often should I review my company’s PPV?
To get an accurate picture of your company’s overall procurement costs you should review your purchase price variance data at least once a month so you can make adjustments if needed before spending spirals out of control.
Can understanding my organization's purchasing processes help reduce my business' PPV?
Absolutely! Having a better understanding of how your organization sources goods and services can potentially make a big difference in reducing your business’s purchase price variance because it will provide insight into potential issues that might be causing poor process efficiencies or excess spending.
What metrics should I look at when evaluating my company’s PPVs?
It is important to compare current performance against forecasts as well as against past performance in order identify underlying patterns that might indicate problems within specific areas such as procurement, logistics or supplier management. Additionally, looking closely at vendor margins may also help uncover hidden issues that increase procurement costs.
Final Words:
In summary, Purchase Price Variance can be an incredibly helpful tool for businesses wanting to control their costs more effectively and improve their profitability. Being able to accurately track purchase variances enables companies to make more informed decisions about where they should allocate their resources most efficiently, leading to increased savings over time.
PPV also stands for: |
|
| All stands for PPV |