How average cost works for products
Overview
This article explains how StoreFeeder calculates average cost for products, including how it changes when you receive stock, make sales, and raise new purchase orders.
New products
For a new product, the average cost starts at £0.
If a purchase order books in 10 units at £5 each:
Total Stock Value = Current Average Cost + (Number of Units × Cost Per Unit) Total Stock Value = £0 + (10 × £5) = £50
Current Average Cost = Total Stock Value ÷ Number of Units Historically Ordered Current Average Cost = £50 ÷ 10 = £5
If the cost per unit is then changed to £4:
Total Stock Value = £5 + (10 × £4) = £45 Current Average Cost = £45 ÷ 10 = £4.50
Making a sale
When you make a sale, the total stock value is updated to reflect the change in stock:
Total Stock Value = £4.50 + (9 × £4) = £40.50 Current Average Cost = £40.50 ÷ 10 = £4.05
Purchase order
If a new purchase order is raised for 10 units at £6 each:
Total Stock Value = £4.05 + ((10 × £5) + (10 × £6)) = £4.05 + £110 = £114.05 Current Average Cost = £114.05 ÷ (10 + 10) = £5.70
Cost reset via stock zeroing
If stock reaches 0, the average cost stays at its current value. Once a new order is placed, the average cost resets to the cost of the new order.
Example: Current average cost is £8.50 and stock drops to 0. The average cost remains £8.50 until a new order is placed.
If a new order is placed for 10 units at £15:
Current Average Cost = (£15 × 10) ÷ 10 = £15
The average cost has effectively reset to the cost of the new order.
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