Material Price Variance

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Posted on by GaryGoldner

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Perhaps someone can point me in the right direction as to how GP calculates the material price variance:

We received an item for 60 Euros; the functional currency is US dollars. GP then correctly debits inventory and credits accrued purchases. We then enter the vendor's invoice for this item, at a price of 61 Euros. GP correctly reverses the accrual and establish the payable. It also created, as a part of the journal entry, a debit to the material variance account for 18.3 Euros, and a credit to the inventory account for 17.3 Euros, in order to balance the entry.

The item uses the FIFO perpetual inventory cost method, and there was only one other unit on hand during the time of these transactions.

I would have expected the variance to be one Euro. How is GP calculating the material price variance?

Thank you.

Gary Goldner

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Redbeard 12,931 on at

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RE: Material Price Variance

Gary,

Here is a post, which covers the logic behind PPV transactions in Dynamics GP, and the settings, which effect the functions.

community.dynamics.com/.../141538.aspx

Please review the post. My strong suggestion is the item involved in your example transaction is behaving strangely, based on your understanding that items assigned to the FIFO Perpetual Inventory Cost method do not book PPV transactions based on differences between Current Cost and Purchase Price.

This is a false assumption. If a user has enabled the Revalue Inventory for Cost Variance option and the variance falls outside the tolerance percentage in Item Purchasing Options Maintenance, then PPV transactions will be booked.

You expected a one Euro Variance, but there was an additional amount booked based on the difference between the current cost and purchase price, the current cost was 42.7 Euros. So the PPV offset 17.3 Euros to Inventory and another Euro for the difference between 60 and 61.

If you want to validate my explanation you can check the item setup option Revalue Inventory for Cost Variance in Item Purchasing Options Maintenance and / or chase down entries for the item in question in the IV10200 and IV10201 tables:

IV10200 – Purchase Receipts (header)

IV10201 – Purchase Receipts Detail (line detail)

I am confident, Dynamics is behaving as configured.
GaryGoldner 225 on at

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RE: Material Price Variance

Hi Redbeard,

I had read this post before, but it did not answer my questions.

Thank you though.

Regards,

Gary
Redbeard 12,931 on at

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RE: Material Price Variance

Gary,

Here is a link to some costing/ppv scenarios, which might help you understand what happened.

http://dynamicsgpland.blogspot.com/2011/08/not-so-new-world-order-cost-variances.html

I would also recommend trying to recreate the transaction in a Test company. If you can't obtain the same results in the test company with the same data, then the transaction may have occurred differently than it was described to you.