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Average Costing Calculation

edited Nov 26, 2019 8:38AM in Accounting / ERP 3 comments

Has anyone run into the following average costing issue?

You have a PO for 10 of item A at $10 each.
When you receive the PO, the inventory value is $100 with an average cost of $10.
You ship those 10 of Item A from sales order 1, inventory count is reduced to 0 with an inventory value of $0.
The total COGS for the sales order is $100.
You have another PO for 10 of Item A at $5 each.
When you receive the PO, the expected inventory value would be $50 with an average cost of $5.
What actually happens is the inventory value is $75 with an average cost of $7.50.
It averages the old cost with the new cost ($10 + $5 / 2) = $7.50

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