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Allocating Purchase Price Variance

How do you allocate purchase price variances at the end of a period to COGS and Inventory?


We are using the standard costing method and generating PPV when the PO price for an item differs from its standard cost. This is an excellent way to identify items with rising costs. At the end of the period, however, for our financials to state income and inventory accurately, we need to prorate the PPV to COGS to accurately reflect the cost of sales and to inventory to accurately reflect the value of the inventory. Currently, the PPV shows as a line item below the gross profit line, and it includes variances generated for all purchases made

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