Description
Average Cost Basis is an Inventory costing methodology alternative to First-In-First-Out (FIFO), and this decision should be made prior to adding any activity into the system. Average Cost Basis is calculated by taking the total cost of each Item you own and dividing by the total number of Quantity, and this calculation is done per Item per Warehouse. The calculation for the value is updated sequentially with any activity (see below) that would impact the calculation.
Calculation
avgCost = ((prevCost * prevQty) + (newCost * newQty)) / (prevQty + newQty)
Transaction Types that impact Average Cost Calculation
At a high level, these are the positive adjustment transaction types that would affect the avg cost value:
- positive adjustment
- receive with no SOLineItemId
- unfulfill with no POLineItemId
- voidconsume
- positive transfer
Transactions that use the Average Cost Basis
And here are the negative adjustment transactions that would use the calculated average cost:
- consume
- return with no SOLineItemId
- fulfill no POLineItem
- negative transfer
- negative production
- negative adjustment