PPV - How configured in SAP

Being learnt on how PPV is calculated, I know you have one open question as how Price Variance Account/GL was determined?!

Account Determination

PPV Account is determined based on the posting rules maintained in Transaction OBYC (Automatic Postings) for transaction/event key PRD (Price Differences).

Account determination is maintained at Chart of Account level.

Different GLs can be maintained at Valuation Area level.

We can use account modification combination with this, the following modifications are available in the standard system:

- None for goods and invoice receipts against purchase orders.

- PRF for goods receipts against production orders and order settlement.

- PRA for goods issues and other movements.

- PRU for transfer postings (price differences in the case of external amounts)

That’s it..!!

NOTE

- Blog till now gives wider understanding on PPV. The more you dig into details, the more are the complications.

- Considered Audi as an Inventory rather than an Asset. Thought this is not far from reality, if you are a dealer in Audi. 

- Treatment may vary based on the configuration maintained in systems.  

Going further we will know more on PPV...

PPV – How SAP determines

I know, you are now enthusiastic to account your new Audi from US in SAP. 

At first we will break up the transaction of buying Audi US into;

3 Action Points

• Identifying a Product.

• Placing an Order.

• Getting delivery of the Product.

There is different Price at each action point. 

Standard/Budget Price - 30,00,000 INR (50,000 USD *60)

Order Price - 51,000 USD *60 = 30,60,000 INR

Actual Price - 51,000 USD *65 = 33,15,000 INR

In SAP,

• During the first action point you must create a Material Master for the car and maintain Standard Price for the same. (Transaction MM01)

• During the second action point you have to create a Purchase Order at Order Price. 

(Transaction ME21N)

• During the third action point you can either do Invoice Receipt (Transaction MIRO) or Goods Receipt (Transaction MIGO). 

Depending on the nature of Price Variance, PPV will be posted either at IR stage or GR stage or both stages.

- During IR, Price variance between PO Price and IR Price will be posted, and

- During GR, Price variance between Standard Price and PO Price will be posted.

To elucidate, you can continue with the same example of Audi Q3 S Edition purchase, but this time with little more complication. 

You had set a budget of INR 25.00 Lakhs to buy Audi, but while placing order you came to know you have shed additional INR 3.99 Lakhs. With heavy heart you agreed for that also. But, a new shock waits for you when you receive the invoice..!! The order was placed at INR 28.99 Lakhs and the Invoice depicts 28.49 Lakhs, 0.50 Lakh less…!! On query you came to know that the saving of INR 0.50 Lakh is due to reduction in tax rate applicable to cars. This saving of INR 0.50 Lakh will be posted as +ve PPV at the time of IR and during GR, –ve PPV of INR 3.99 Lakhs will be posted.

This can be formulated as below;

PPV during IR:

PO Price - IR Price

28.99 Lakhs - 28.49 Lakhs = 0.50 Lakh

PPV during GR:   

Standard Price - PO Price

25.00 Lakhs - 28.99 Lakhs = 3.99 Lakhs

Net PPV:              

Standard Price - IR Price OR [Standard - Actual]

25.00 Lakhs - 28.49 Lakhs = 2.49 Lakhs

This can be Journalized as below;

During IR                  

GR/IR Account DR 28.99 Lakhs         [PO Price]

Vendor Account CR 28.49 Lakhs         [Invoice Price]

PPV Account (Bal.)     CR 00.50 Lakhs

During GR                  

Material Account DR 25.00 Lakhs   [Standard Price]

GR/IR Account CR 28.99 Lakhs [PO Price]

PPV Account (Bal.) DR 03.99 Lakhs         

PPV - In General

PPV - Purchase Price Variance, which haunts many people like Permanent Paralytic Virus is now been cracked down to the simplest of understanding.

Purchase Price Variance (normally referred as PPV) in simple words is just the difference between the Standard Cost and the Purchase Cost.

For Instance:

You see an ad in newspaper, Audi Q3 S Edition starting at INR 24.99 Lakhs..!! With a WOW exclamation you make a budget of INR 25.00 Lakhs to buy the car.

With all joy in your heart step into Audi showroom, and to the shock of lifetime you will come to know you have to shed additional 4.00 lakh towards insurance, registration and on and on, to get the car really on the road..!!

This shocking difference of INR 3.99 Lakhs between your planned and actual purchase price of the car is your Purchase Price Variance. This increased purchase cost is –ve PPV.

Not being so pessimistic, there are also instances of +ve PPV, where you are saving on your budgeted amount. The best example would be of buying a mobile phone after making a budget based on best buy price stated in ad.

This can be formulated as below;

Standard Cost – Actual Cost = Purchase Price Variance (PPV)

25.00 Lakhs – 28.99 Lakhs = (3.99 Lakhs)

Isn't this very simple..!! :)

We will add a little on this!