Average Costs are something that StoreFeeder is able to calculate for stock.
Each product will have an average cost value tied to it.
New Products
For a new product, the Average Cost will start at £0.
If for this product a purchase order is made 10 units are booked in at a cost of £5 each:
Total Stock Value = Current Average Cost + (Number of Units x Cost Per Unit)
Total Stock Value = £0 + (10 x £5) = £0 + (£50) = £50.
Current Average Cost = Total Stock Value ÷ Number of Units Historically Ordered
Current Average Cost = £50 / 10 = £5.
If the Cost Per unit is changed to say £4 in this example this will also be reflected in the Total Sock Value and thus also the current Average Cost:
Total Stock Value = £5 + (10 x £4) = £5 + (£40) = £45.
Current Average Cost = £45 / 10 = £4.50.
Making a Sale
If you make a sale, then the total stock value is updated to reflect the change in stock:
Total Stock Value = Current Average Cost + (Number of Units x Cost Per Unit)
Total Stock Value = £4.50 + (9 x £4) = £4.50 + £36 = £40.50
Current Average Cost = Total Stock Value ÷ Number of Units Historically Ordered
Current Average Cost = £40.50 / 10 = £4.05.
Purchase Order
If a new purchase order is then made, but this time the order is for 10 units at £6 each, according to the formula:
Total Stock Value = Current Average Cost + (Number of Units x Cost Per Unit)
Total Stock Value = £4.05 + ((10 x £5) +(10 x £6)) = £4.05 + 110 = 114.05
Current Average Cost = Total Stock Value ÷ Number of Units Historically Ordered
Current Average Cost = £114.05 / (10+10) = £ 5.70.
Cost Reset via Stock Zeroing
If for whatever reason, your number of units in stock would eventually become 0, the Average Cost will remain as is, however once a new order is made, “Current Average Cost” becomes the new average.
For instance, if the current Average Cost is £8.50 and the stock goes to 0, £8.50 will be the current Average Cost.
However, if a new order is made for 10 units at £15:
Current Average Cost = (£15 x 10) ÷ 10
Current Average Cost = £15
And thus, the Average Cost has effectively reset and updated.
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