Calculation Method
Contents
The calculation method control determines how the updated cost values are derived.
New Cost method
If the new cost method is chosen, the new real cost becomes the actual cost regardless of the purchase price of any old stock.
Average Cost method
If this method is selected entrée will use the total value of existing inventory (at current cost) and adds it to the value of the new inventory, (at new cost) which in turn is then divided by the combined number of units.
The following table illustrates how the average cost would be calculated during the receiving process for an item. ------------------------------------------------- On Hand Qty Real Cost Value New Stock 60 14.00 840.00 Old Stock 23 12.73 292.79 Totals 83 1132.79 -------------------------------------------------
The Average Cost could then be determined using the formula:
Total Value / Total On Hand ===> 1132.79 / 83.00 = 13.6481
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