Average Cost Valuation Example
- Former user (Deleted)
This example shows the calculation of the Average Cost after various transaction types.
On Hand Average Cost Calculation
The Average Cost is updated whenever either of these two types of transaction is entered:
- Stock Purchase (AP Invoice)
- Stock Value Adjustment
The calculation is made by taking the stock on hand resulting from the transaction, and then comparing this quantity with the quantity of the transactions itself. The quantity of the transaction is valued at the transaction rate, and the remainder of the stock on hand is valued at the existing average cost rate. This gives a new stock valuation and hence a new average cost.
The above example shows the Average Cost and subsequent issue rates in an ideal situation when stock is issued only after an APInvoice with accurate costs has been entered.
The system allows for stock to be issued once it is receipted into stock even though the purchase price of those receipted goods is not to hand. Issues are at the last average cost.
If you chose to issue before APInvoice processing there will be a variance once the APInvoice has been entered. This variance will be accounted for at next Stocktake.
On Hand Average Cost Calculation if purchase price is entered after issue.
If the transaction quantity is actually greater than the current stock on hand, as may be the case if a purchase has been receipted into stock and issued before the AP Invoice is processed, then the new Average Cost is set to the transaction rate. i.e. All of the stock on hand is valued at the purchase rate.
The following example depicts this
Changes in Stock On Hand rate because of difference between assumed receipt rate and actual subsequent rate of purchase.
This impacts the issue rate
If you chose to issue before APInvoice processing the General Ledger Stock On Hand balance will not agree with the Workbench Stock On Hand. Workbench calculates the On Hand position accurately and any Price variance will have to be sorted in the General Ledger presumably at Stocktake time.
Following are screen shots of the transactions in the above example showing when appropriate the Stock Management On Hand Value and Item Average Cost
Opening Balance 10 @ $10
Purchase 10@ $10
IN this process we went from PO to AP Invoice without receipting.
Purchase 10 @$25
Issue 15
Purchase 10 @$21
Order 100 @$20
Receipt 100
Purchase 60 of the 100 receipted @$10
Stock on Hand Value and Rate
"The quantity of the transaction is valued at the transaction rate, and the remainder of the stock on hand is valued at the existing average cost rate. This gives a new stock valuation and hence a new average cost."
Answer should be:
60 * 10 = 600
65 * 17.40 = 1131
_________________
125 1731 $13.85
Issue 100
Purchase 40 of the 100 receipted @$20
Stock on Hand Value and Rate
"If the transaction quantity is actually greater than the current stock on hand, as may be the case if a purchase has been receipted into stock and issued before the AP Invoice is processed, then the new Average Cost is set to the transaction rate. I.e. all of the stock on hand is valued at the purchase rate."
25 @ $20 = $500.00