How Average Cost is calculated for Inventoried Items

Overview

Everest calculates stock value differently for each type of inventory item it tracks, provided for multiple purposes in the system, like reporting or some transaction processing. 

For Serialized Items the actual cost of acquisition of each item is used, as the company needs to have a permanent track of each item unit. Instead, a weighted average cost is used for Non-Serialized Items, as the items are tracked by batch or lot, not by unit. Examples of Non-Serialized items are bottles or clothing pieces.

Calculation

Suppose following stock situation in the company: 

• 772 units of an item are currently in stock (acquired at $245 one month earlier).
• 108 units of same item are received today, now at $332 each

Average cost for that item is then recalculated as a weighted average in the system:

• ((108*$332)+(772*$245))/880 = $255.68

Important: Average Cost is ONLY recalculated when stock receives new units and NEVER when units leave the stock - so that the information is properly taken into account for other calculations and reports.