Skip to main content

How does the Average Inventory Valuation work?

Download Our App

Download on the App Store Get it on Google Play

Comments

3 comments

  • Pritesh Patel

    Hi {@005D000000AEQ9rIAH}​ 

     

    A very good question,

     

    Inventory cost is kept at each outlet level. You can see this if you go to Property > Products > open a Product > click the Inventory button. Average pricing is calculated per period,

     

    Please find the following example of how the Average Inventory Valuation is calculated:

     

    Lets say, you have product 123, which is a bag of Apples and at the end of June inventory, you had a count of 2 bags and an inventory value of $3. In July, you purchase 2 more bags at $3.25, you now have 4 bags at an inventory value of $3.12, this is calculated from the below formula:

     

    2 Bags of Apples from June x $3 (The value from June)= $6 

    2 Bags of Apples purchased in July x $3.25 (the value from July) = $6.50 

    This will give you a total of $12.50 ($6 from June + $6.50 from July)

    $12.50 (total value from June & July) divided by 4 (total quantity from June & July) = $3.12 (your average cost) 

     

    If you close July with these 4 (total quantity of Bag of Apples) than your average cost will be $3.12 which will become the new starting cost for the next period,

     

    I hope this helps,

     

    Best

    Pritesh

    Fourth

     

    0
  • Lee Grisham

    Thanks, Pritesh, that helps! Does it do a different calculation if there is no inventory, though? We go through our products quickly, so I want to make sure the price has to do with what is on hand, not just the cost at receiving.

     

    LG

    0
  • Pritesh Patel

    Hi @Hudley Grisham​ ,

     

    Thank you for your follow up question,

     

    If there is no Inventory on hand then the average will remain as it is as there is no new inventory coming in, until either you receive the product in, or your inventory increases, through requisitions/transfers, from which the system will run the calculation i mentioned above, for both inventory increasing from Receiving's from Vendors or inventory increasing through internal requisitions/transfers,

     

    Hope this answers your question,

     

    Best

    Pritesh

    Fourth

    0

Please sign in to leave a comment.