Compute the cost of product (average costing)¶
The average costing method help you to decide the product sell price, each time you purchase the product new cost will be updated based on the existing stock and purchased stock value.
The My Company is a distributor of Laptop, they purchase a laptop form the default supplier and sell to retail customers, there are sometime frequent price change, so My Company wants to setup the inventory costing and based on average cost method.
- Install Sales Management, Purchase Management & Accounting and Finance apps
- Create a product Laptop
- Set the Internal Category to All / Saleable
- Set Costing Method to Average Cost (AVCO) on All / Saleable category
- Define Default Supplier as a vendor with the cost price of Laptop.
- Purchse 3 unit of Laptop at different rates, the product will be computed on each reception by doing an average based on the purchase price.
Assumed that you have a 10 unit of laptop cost of 8500 (the inventory value will be same as the cost), you purchase new 10 laptop at the price of 830 each. The new cost price will be computed by an averga of total cost vs units. 840 = (8500 + 8300) / 20 (10 existing stock + 10 new purchase)