Purchase Price Variance (PPV)
Difference between the standard price and the actual price paid for goods or services
What is Purchase Price Variance (PPV)?
Purchase price variance is the difference between the actual price paid for goods and the standard, or expected, price, multiplied by the quantity bought. It shows whether purchasing is coming in above or below plan.
It is a key control in manufacturing and retail, helping to explain changes in cost and margin.
How this KPI is measured
- Function
- Operations & Supply Chain
- Sub-function
- Procurement
- Industry
- All Industries
- Type
- Lagging
- Impact
- Financial control
- Unit
- $
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Actual price paid − Standard price) × Quantity purchased
How to calculate it
Subtract the standard price from the actual price paid and multiply by the quantity purchased.
For example, if a part has a standard price of 10, the actual price was 10.50 and 20,000 were bought, PPV is (10.50 - 10) x 20,000 = 10,000 unfavourable.
A positive result means paying more than standard, and a negative result means paying less. Review the standard prices regularly so the measure stays meaningful.
Where it is used
Controlling cost
Spot price increases.
Explaining margin changes
Link to purchasing.
Assessing suppliers
Track price performance.
How to improve it
Tips and common mistakes
- An outdated standard makes variances meaningless.
- Favourable variances from poor quality can be costly later.
- Consider total cost, not only price.
More Operations & Supply Chain kpi library
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