Generate Average Costs
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Introduction
Generate Average Costs process calculates products Average Cost.
Inputs for this process are:
- Product Costing set-up and current Average Cost of the product as reflected in the Product Costing tab of the Product window.
- All new Goods Receipts of the product since the last process run.
Execution:
- Generate Average Costs takes the oldest not yet processed by Generate Average Costs process Goods Receipt.
- Calculates Current Stock Value of the product at the date of Goods Receipt as a multiplication of the Quantity on Hands at the date of Goods Receipt (but not including Quantities from Goods Receipt) and Current Average Cost of the product: Current Stock Value = Quantity on Hands * Current Average Cost.
- Gets New Stock Value of the product by adding to the Current Stock Value cost of the product from the Goods Receipt: New Stock Value = Current Stock Value + Receipt Quantity * Receipt Product Cost.
- The product cost of the receipt is calculated based on the product price in the corresponding Purchase Invoice. If the invoice does not exist the price of the Purchase Order is used. If the order does not exists also the price list of the provider is used. If none of these criteria exists, a warning is generated and the previous cost is used.
- Calculates New Average Cost by dividing New Stock Value by New Quantity on Hand that includes Quantity from Receipt, New Average Cost = New Stock Value / (Current Quantity on Hands + Receipt Quantity).
- Inserts new line with New Average Cost calculated based on the processed Goods Receipt to the Product Costing tab.
- Repeats all steps if there is another not process Goods Receipt.
For example:
- 100 units of a Product A with a price of 2.50 are received in January 2011. There was nothing in stock before so the average cost is 2.50.
- 50 more units of the Product A for 2.54 arrived in January. On this date there were 75 units of Product A in stock (because sales happened), so new cost is (75*2.50+50*2.54)/125 = 2.516.
- 10 units of Product A for 2.60 are received in February. On this date there was 70 units in stock (some units were sold meanwhile), so new cost is (70*2.516+10*2.6)/80 = 2.5265.
Process window
Note: Incremental check box means everything will be deleted and recalculated if not checked. If checked, only complementary information will be included.
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