Purchase Price Variance
Definition
The difference between the standard or budgeted price of a purchased item and the price actually paid, multiplied by the quantity bought.
In Practice
Purchase price variance (PPV) is the finance lens on buying performance. If the standard cost of a component is 5.00 and the buyer pays 4.70 for 10,000 units, PPV is 3,000 favorable; paying 5.40 makes it 4,000 unfavorable. PPV rolls into cost-of-goods reporting and is often a headline metric for procurement teams, with standards reset annually during budgeting.
Use it carefully. PPV can be gamed: buying huge quantities to hit a price break creates favorable PPV while burying the company in inventory, and unfavorable PPV may simply reflect commodity markets rising, not poor buying. Mature organizations pair PPV with total cost measures and market indices so the metric informs rather than distorts behavior.
Example: a buyer shows 200,000 dollars favorable PPV, but analysis reveals half came from bulk buys that pushed inventory up 3 million dollars. Leadership adds an inventory-adjusted savings metric so price and stock are judged together.
Related Calculators
Related Terms
An estimate of what a product or service ought to cost, built bottom-up from materials, labor, overhead, and margin, used to evaluate supplier prices objectively.
Price BreakA quantity threshold at which a supplier's unit price drops, so ordering more units per order earns a lower price per unit.
Landed CostThe total cost of getting a purchased item to your door, including the unit price plus freight, insurance, duties, taxes, and handling charges.