Average Cost

[John C.]

Can someone explain to me how "Average Cost" comes about in inventory? Whenever I add to inventory, and put in the "Last Cost" amount, I would assume it would average out what we've paid in the past, to what we paid on this last order (maybe factoring in quantities???). Well, it's not working that way here, for example: Toyota LL Coolant (Pink), we typically pay in the $16 per gallon/quantity of 1. As I type this, our "Average Cost" is $28.91, which started out this morning over $58. I've been messing around with quantity, user entered price... and the "Average Cost" has changed about four times. It appears, without changing "Last Cost" there are/is something that will change the "Average Cost."

I've watched as many videos on inventory that I could find, so without spending more time, and killing more brain cells (not many of them left), does anyone have an idea of what I am doing wrong?

Thanks!!!

[Silky7]

John,

You're on the right path. Average cost is the average cost of items over time. For example:

You buy 3 widgets at $5.00 each on Monday.
You buy 2 more widgets at $10 each on Wednesday.
Your average cost then is $7. ((3 x 5 = 15) + (2 x 10 = 20)) = $35. Divide that by the total purchased, 35/5 = 7.

Now, you're probably seeing what a number of shops go through — if you mistakenly add an extra digit to your cost when you receive an item to inventory, you end up with a skewed Average cost. To reset it, edit the part and set the QoH to zero. Make sure your Last Cost is accurate at that time. Hit OK to complete the edit. Immediately edit the part one more time, and set the correct QoH that you have.

Now you'll be back to an Average cost that calculates correctly moving forward.

[John C.]

Got it, thanks!!!