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Case Study & Technical Analysis: CAC Invoice Price Variance

Executive Summary

The CAC Invoice Price Variance report is a procurement performance and financial analysis tool. It details the differences between the Purchase Order (PO) price and the actual Accounts Payable (AP) Invoice price. It captures both the Invoice Price Variance (IPV) (operational price difference) and the Exchange Rate Variance (ERV) (currency fluctuation difference), providing a complete picture of purchase cost performance.

Business Challenge

Standard Costing relies on the PO price being an accurate reflection of cost. When the Invoice differs:

  • Margin Erosion: Higher than expected material costs eat into product margins.
  • Vendor Performance: Frequent IPV suggests that a vendor is changing prices after the PO is cut, or that the PO pricing maintenance is poor.
  • Currency Risk: Large ERV indicates that currency volatility is impacting the cost of goods sold.

Solution

This report provides line-level visibility into these variances.

  • Dual Variance: Separates IPV and ERV into distinct columns, allowing users to distinguish between "Vendor raised price" (IPV) and "Dollar got weaker" (ERV).
  • Write-Offs: Includes AP Accrual Write-Offs, ensuring that all adjustments to the inventory value are captured.
  • Drill Down: Provides PO Number, Invoice Number, Vendor, and Item details for every variance line.

Technical Architecture

The report bridges Purchasing and Payables:

  • Source Data: ap_invoice_distributions_all (where the variance is booked).
  • Linkage: Joins to po_headers_all and po_lines_all to retrieve the original commitment details.
  • Accounting: Identifies the specific IPV and ERV accounts charged.

Parameters

  • Transaction Date From/To: (Mandatory) The date range for the AP Invoices.
  • Category Set: (Optional) To analyze variances by commodity (e.g., "Steel", "Plastics").
  • Vendor: (Optional) To audit a specific supplier.

Performance

  • Transaction Volume: Performance depends on the number of invoice lines in the selected date range.
  • Indexed: Uses standard date indexes on AP tables.

FAQ

Q: What is the difference between IPV and PPV? A: PPV (Purchase Price Variance) is the difference between Standard Cost and PO Price. IPV is the difference between PO Price and Invoice Price.

Q: Does this report show PPV? A: No, this report focuses strictly on the AP side (IPV/ERV). Use the "Purchase Price Variance" report for PPV.

Q: Why is IPV important for Standard Costing? A: IPV is expensed immediately (usually). It represents a "leak" in the standard cost model that needs to be monitored.