Friday, October 3, 2014

Dynamics GP Purchase Price Variance

Lately, I've noticed a number of forum posts regarding Dynamics GP Purchase Price Variance functionality.  The forum posts invariably revolve around what users feel are inexplicable GL transactions related to PPV. What follows is an overview of the settings which govern how Dynamics GP processes PPV transactions.

Most users grasp the main function of the PPV feature, which typically records the difference in a Purchase Order Receipt transactions versus Vendor Invoice cost. If you receive something on a Purchase Order for $60, then later receive a Vendor Invoice for $61, then Great Plains calculates a PPV of one dollar -- most users anticipate and understand this behavior.

There is another reason why PPV transactions are booked in Great Plains. This behavior is caused by differences between Current Cost and Purchase Price. Savvy users understand, when Purchase Prices Vary from Standard Costs, PPV is calculated and booked to the General Ledger.  I believe the problem is, two fold... Some users just don't get this concept.  Other users do not understand there are configuration options, which enable and extend this functionality.  Here is a brief summary of the core concepts:
  • Entering a Standard Cost in the system is only half the battle.
  • In order for the Standard Cost data to be utilized by GP, the item must be configured to use a Periodic Inventory Valuation Method.
  • Items not assigned a Periodic Inventory Valuation Method can be configured to behave like Standard Cost items, by checking the Revalue Inventory on Cost Variance check box on the Item Purchasing Options Maintenance.
  • When the Revalue Inventory on Cost Variance feature is enabled, a tolerance can be defined to govern this behavior.
  • Throw all these options into a bag and shake vigorously and most people are mystified by postings to the PPV account.
  • Still other folks confuse this functionality with Standard Cost Revaluation.
In addition to the behavior most people define as typical.  There are two other scenarios which relate to the difference between Current Cost and Purchase Price.

First, the PPV feature calculates variances related to items assigned a Periodic Inventory Valuation Method.  Periodic Valuation methods in Dynamics GP are synonymous with Standard Costing.  When an item is assigned to one of the Periodic Inventory Valuations Methods and a Standard Cost is entered for the item, any deviation from Standard Cost, when the item is purchased will be booked to the PPV GL account.  

Second, when an item is configured and the user selects the Revalue Inventory for Cost Variance option for an item in Item Purchasing Options Maintenance, the user is enabling this same functionality, for items assigned non-periodic Inventory Valuation Methods (Perpetual and Average).   The user also has the option to assign a tolerance percentage using this feature.   

When this feature is enabled for an item, then this item is treated much the same as items configured using a Periodic Inventory Valuation Method with a Standard Cost. In this instance, average or actual costs are compared to the purchase price to compute PPV entries, and this activity only occurs if the difference falls outside the set tolerance.

In summary, when configuring Dynamics GP, it is important to configure PPV options correctly and understand the implications of these settings on system behavior.

No comments:

Post a Comment