Joined: Mon Feb 14, 2011 2:02 am Posts: 80 Location: Slovakia
Hi, I need to know how this cost method works. There are two many inventory tables in DB and also too many links between these tables. I tried to figure out how this method works, but I dont know
Post subject: Re: Inventory - cost_method=avarage
Posted: Thu Apr 07, 2011 5:03 pm
Joined: Fri Oct 26, 2007 3:55 pm Posts: 3498 Location: Colorado, US
Average cost is calculated based on the quantity in stock times the price per unit divided by the total number of units at the time of calculation.
For example, Purchase 2 printers at $100 each. Sell one, average cost is $100. Purchase 2 more at $110 each. Sell one, average cost is $106.66 each. (1 at 100, 2 at 110, total 320 / 3 units = 106.66) Inventory history will now have current stock of 2 printers at an average cost of $110.
Check with your accountant as most businesses use FIFO.
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