How Average Cost Works for Products.

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.