Typically, a product’s Average Cost is recalculated when a purchase order is received, but receiving a PO will only account for purchasing costs. The PO does not account for external product-related costs such as production, molds, artwork, etc. Those costs can be manually added to adjust the product’s Average Cost.
Here’s an example:
- If 100 units are in stock at $444/piece and a $5000 artwork adjustment is added, Average Cost is $494. (See the Amount is per unit adjustment option below to distribute or apply to each unit.)
Understanding average cost
There are 2 kinds of average costs:
- Simple Average Cost – Looks at the cost of a single unit against a cost of another single unit. Here’s an example:
- 10 units at $2.00/piece and 20 units at $3.00/piece. Quantities are ignored while only averaging the dollar values. Thus, Average Cost is $2.50.
- Weighted Average Cost – Also factors in quantity. Here’s an example:
- 10 units at $2.00/piece = $20.00 and 20 units at $3.00/piece = $60.00. Total cost of $80.00 is divided by all units received, in this example, 30. $80.00 / 30 = Weighted Average Cost of $2.67.
Note that weighted average only weighs units received against units currently in stock, not units since Day One. To calculate with a weighted average, select Average Cost as above and enable the Client Setting Use Weighted Average Cost for PO. Sellercloud will consider in the calculations both Sellable and Non-Sellable quantities in the warehouses; however, quantities in Dropship warehouses will be excluded from the Average Cost calculation.
PO shipping costs or other third-party costs can also be factored into Average Cost. These can be averaged into the item cost to get an accurate P&L report by enabling the Client Setting Consider PO Extra Costs when Calculating Product Costs.
Adjusting average cost
- Enable the Client Setting Enable Average Cost Adjustments.
- On the Product Summary, find the Average Cost field and click the hyperlinked value to open the Average Cost detail showing the average cost movement.
- At the top left, enter the adjustment Amount. This can be a positive or negative value.
- For the Amount is per unit adjustment option:
- Select it – To apply the adjustment amount to each unit currently in inventory. Example: If you have 100 in stock with Average Cost = 100 and you add an adjustment for 10, the result will be Average Cost = 110.
- Unselect it – To distribute the adjustment amount equally across all current inventory of this product. Example: If you have 100 in stock with Average Cost = 100 and you add adjustment for 10, the result will be Average Cost = 100.10 (10/100 = 0.1).
- Enter a Reason, such as “Artwork.”
- Click Add Adjustment. Average cost will be recalculated to include the adjustment, which will appear in the grid’s Trans. Type column as Avg_Cost_Adjustment.
Importing average cost adjustments
- Enable the Client Setting Enable Average cost adjustments.
- Bulk-add Average Cost adjustments to multiple products through a file import:
- Click Inventory > Import Product Info > Import Product Average Cost Adjustments.
- Download the Product Avg Cost Adjustments template and delete the sample data.
- Populate the column as explained above. Use values TRUE or False in the IsAmountPerUnit column.
- Save the file and Choose File.
- Click Import Avg. Cost Adjustments to import the adjustments.