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Product Average Cost

Table of Contents

Overview

Average Cost is the cost of the product’s units, which is continually averaged from the product’s price on the PO at the time POs are received.

To see how Average Cost is used when calculating an Order, refer to this Calculating Item Cost video tutorial.
Sometimes, PO shipping costs or third-party costs can also be factored into the Average Cost. Learn all about how to factor these other costs into Average Cost here.

Check out this video tutorial in our Delta interface!

Average Cost Calculations Types

There are two types of average cost — Simple Average Cost and Weighted Average Cost — which vary based on the calculation type applied to the order.

TYPE DEFINITION
Simple Average Cost Cost of a single unit against the cost of another single unit. This Average Cost Type is averaged only by the dollar value, while quantities are ignored.

For example, there are 10 units at $2.00 per piece and 20 units at $3.00 per piece. Thus, the Average Cost is $2.50.
Weighted Average Cost This Average Cost Type factors in both quantity and price.

For example, there are 10 units at $2.00 per piece ($20.00 in total) and 20 units at $3.00 per piece ($60.00 in total). Then, the total cost of $80.00 is divided by all units received, which is 30. $80.00 / 30 = Weighted Average Cost of $2.67.

The Use Weighted Average Cost for PO Client Setting must be enabled to use this cost calculation type. Weighted average only weighs units received against units currently in stock, not units since Day One.
Sellercloud will consider both Sellable and Non-Sellable quantities in the warehouses when calculating average cost, but quantities in Dropship warehouses will be excluded from the Average Cost calculation.

Average Cost Adjustments

Average Cost Adjustments can be set on a product manually or added through a file import. Prior to adding an Average Cost Adjustment, make sure you have enabled the Enable Average Cost Adjustments client setting. There are two ways to adjust Average Cost:

  • Adjust Average Cost manually (individually or in bulk).
  • Set or “Prime” the Average Cost to a specific value.

Adjust Average Cost Individually

  1. Navigate to Catalog > Manage Catalog.
  2. Open the requested product.
  3. In the upper right, click Edit. Alternatively, click the pencil icon on the Purchasing panel.
  4. Click the Open Average Cost Details option.Average Cost details
  5. In the Average Cost Details panel that appears, click the plus icon.
  6. Click the Amount line, and enter the adjustment amount. This can be a positive or negative value.
  7. Select the Per Unit Adjustment check box to apply the adjustment to each unit that is currently in stock. The entered adjustment amount will be distributed equally across all items. For instance, if you have 100 in stock with Average Cost of $100 and you add an adjustment of $10, the Average Cost will become $100.10, since 10/100 = 0.1.
  8. Specify the Reason for the changes.
  9. Click Add.Average cost adjustment
  10. The product’s Average Cost will be automatically recalculated to include the adjustment. The notification message will appear, and the relevant record will be logged in the Average Cost Details panel.Average cost adjustment record
  11. You can review the history of all the previous product adjustments by selecting Average Cost Details from the product’s Toolbox.
Learn how to recalculate P&L on an order after adjustments.

Adjust Average Cost in Bulk

To make average cost adjustments for multiple products, make sure you have the Enable Average Cost Adjustments Client Setting enabled and follow the steps below.

  1. Navigate to Catalog> Tools > Import Product Info.
  2. Select  Import Product Average Cost Adjustments.Import Average Cost Adjustments
  3. To download a sample template file, click the Download icon.
  4. Populate the following columns: ProductID, Amount, IsAmountPerUnit, Reason. Use values TRUE or FALSE per the IsAmountPerUnit column.
  5. Save the file.
  6. Return to the Import Product Average Cost Adjustments panel.
  7. Click the File field and select the appropriate file from your computer. Click Import.Import Average Cost Adjustments

Prime Average Cost

With Sellercloud, you can always reset the Average Cost and set it to a specific value. This is typically done during initial account setup in order to prime the average cost of a product but can be done whenever you need to. To make specific average cost adjustments, populate this Prime Average Cost import template and submit it to Sellercloud Support.

Once the Prime Average Cost file is imported, all inventory movements created before the date indicated will be ignored in the average cost calculation. Only inventory movements done after that date will impact the Average Cost value.

Average costs can even be backdated to update existing orders that have incorrect item costs.  Learn how to do that here.

The client setting Use Weighted Average Cost for PO must be enabled for this workflow.

To access the configuration options, go to Settings > Client Settings > Advanced.

CLIENT SETTING DEFINITION
Enable PO Based Extra Costs Select to see the Gross Cost on the product’s summary page.
The Gross Cost excludes quantity from its calculation.
Gross Cost = Average of the Adjusted Price + Extra Cost (Per Unit) + Extra Cost (PO Based Per Unit) for the product from all previous Purchase Orders.
Include PO Based Extra Costs in Average Cost too Enabling this will count the extra costs on a Purchase Order towards the products’ average cost calculation.
Note: Enable PO Based Extra Costs must be enabled first.
Allow Free PO Items to affect average cost Allows items with zero cost in Purchase Orders to affect the average cost calculation.
Note: Weighted Average cost calculation must be enabled.
Do not create average cost for inventory count disabled POs
 If a Purchase Order is marked as Inventory Disabled, units received will not affect the current average cost.

Note: Weighted Average cost calculation must be enabled.
Rebuild average cost if cost changes on PO If you have a PO that’s received and the average cost is updated, you can go and change the item cost on a PO for its products. Enabling this setting will account for those changes and update the average cost for the products accordingly.

Note: Weighted Average cost calculation must be enabled.
Do not consider over received PO qty for average Cost
 If you have a PO with a certain quantity ordered, the average cost will be calculated for the quantity ordered only, no matter how much quantity was actually received.

Note: Weighted Average cost calculation must be enabled.
Do not adjust Avg Cost when receiving Credit Memos If you receive Credit Memos, the average cost will not be affected.

Note: Weighted Average cost calculation must be enabled.
Enable PO Price as AverageCost for specific Vendors  This will add a new checkbox on the Vendor details page called Treat PO Prices on Average Cost.

If you have a PO connected to a vendor (that has this enabled). Then, regardless of the unit cost on the PO, the average cost will not be affected.

Note: Weighted Average cost calculation must be enabled.
Do not create average cost for inventory adjustments The Inventory Cost entered in inventory adjustments will not be taken into consideration when calculating average cost.

Note: Weighted Average cost calculation must be enabled.
Enable ignore specific warehouses from average cost movement  You will be able to specify which warehouses you don’t want to affect average cost calculation (when receiving POs in them etc.) Once you enable this Client setting, a new setting will appear on the Warehouse details page called Ignore inventory when calculating average cost. (If you don’t see it in Delta, it’s in Alpha). You can then set which warehouse you want to ignore.

Note: Weighted Average cost calculation must be enabled.

Does Average Cost differ from Gross Cost?

Yes, the latter excludes quantity from its calculation:

Gross Cost – Average of the Adjusted Price + Extra Cost (Per Unit) + Extra Cost (PO Based Per Unit) for the product from all previous POs.

You can see  Gross Cost on the product’s Summary  (show me where), but only if you select Enable PO Based Extra Costs in the Client Settings.

Overview

Average Cost is the cost of the product’s units that is continually averaged from the product’s price on the PO at the time POs are received.

To see how the Average Cost is used when calculating an Order, refer to this Calculating Item Cost video tutorial.
Sometimes, PO shipping costs or third-party costs can be also factored into the Average Cost. Learn all about how to factor these other costs into Average Cost here.

Average Cost Calculations Types

Depending on the calculation type applied, there are two types of average cost: Simple Average Cost and Weighted Average Cost. To apply the Weighted Average Cost calculation, the Use Weighted Average Cost for PO Client Setting must be enabled.

  1. To access the settings, go to Settings > Client Settings.Client Settings Alfa
  2. Search for the requested setting, and select it.Weighted Cost Calculation
  3. Scroll down the page, and click the Save button to apply the changes.
  4. See the detailed definitions of both cost calculation methods in the table below.
TYPE DEFINITION
Simple Average Cost Cost of a single unit against the cost of another single unit. This Average Cost Type is averaged only by the dollar value, while quantities are ignored.

For example, there are 10 units at $2.00 per piece and 20 units at $3.00 per piece. Thus, the Average Cost is $2.50.
Weighted Average Cost This Average Cost Type factors in both quantity and price.

For example, there are 10 units at $2.00 per piece ($20.00 in total) and 20 units at $3.00 per piece ($60.00 in total). Then, the total cost of $80.00 is divided by all units received, which is 30. $80.00 / 30 = Weighted Average Cost of $2.67.

The Use Weighted Average Cost for PO Client Setting must be enabled to use this cost calculation type. Weighted average only weighs units received against units currently in stock, not units since Day One.
Sellercloud will consider both Sellable and Non-Sellable quantities in the warehouses, but quantities in Dropship warehouses will be excluded from the Average Cost calculation.

Average Cost Adjustments

Average Cost Adjustments can be set on a product manually or added through a file import. Prior to this, make sure you have the Enable Average Cost Adjustments Client Setting enabled.

Adjust Average Cost Manually

  1. Access Inventory > Manage Inventory.
  2. Open the requested product.
  3. On the Purchasing Details panel, click View Purchasing Details.View Purchasing Details Alfa
  4. Select Details, next to the Average Cost field.Average Cost Alfa
  5. In the Amount field, enter the adjustment amount. This can be a positive or negative value.
  6. Select the Per Unit Adjustment check box to apply the adjustment to each particular unit that is currently in stock. Thus, the entered adjustment amount will be distributed equally across all items. For instance, if you have 100 in stock with Average Cost of $100, and you add an adjustment of $10, then the Average Cost will become $100.10, since 10/100 = 0.1.
  7. Specify the Reason for the changes.
  8. Click Add Adjustment.Click Add Adjustment
  9. The product’s Average Cost will be automatically recalculated to include the adjustment. The notification message will appear, and the relevant record will appear in the grid.
Learn how to recalculate P&L on an order after adjustments.

Adjust Average Cost in Bulk

To make average cost adjustments for multiple products, make sure you have the Enable Average Cost Adjustments Client Setting enabled and follow the steps below.

  1. Access Inventory > Import Product Info > Import Product Average Cost Adjustments.
  2. To download a sample template file, click the Download template button.
  3. Populate the following columns: ProductID, Amount, IsAmountPerUnit, Reason. Use values TRUE or FALSE per the IsAmountPerUnit column.
  4. Save the file.
  5. Return to the Import Product Average Cost Adjustments page.
  6. Click the Choose File field, select the appropriate file from your computer. Click Upload File.

Prime Average Cost

With Sellercloud, you can always reset the Average Cost and set it to a specific value. This is typically done during initial account setup in order to prime the average cost of a product but can be done whenever you need to. To make specific average cost adjustments, populate this Prime Average Cost import template and submit it to Sellercloud Support.

Once the Prime Average Cost file is imported, all inventory movements created before the date indicated will be ignored in the average cost calculation. Only inventory movements done after that date will impact the Average Cost value.

Average costs can even be backdated to update existing orders that have incorrect item costs.  Learn how to do that here.

The client setting Use Weighted Average Cost for PO must be enabled for this workflow.

To access the configuration options, go to Settings > Client Settings.

CLIENT SETTING DEFINITION
Enable PO Based Extra Costs Select to see the Gross Cost on the product’s summary page.
The Gross Cost excludes quantity from its calculation.
Gross Cost = Average of the Adjusted Price + Extra Cost (Per Unit) + Extra Cost (PO Based Per Unit) for the product from all previous Purchase Orders.
Include PO Based Extra Costs in Average Cost too Enabling this will count the extra costs on a Purchase Order towards the products’ average cost calculation.
Note: Enable PO Based Extra Costs must be enabled first.
Allow Free PO Items to affect average cost Allows items with zero cost in Purchase Orders to affect the average cost calculation.
Note: Weighted Average cost calculation must be enabled.
Do not create average cost for inventory count disabled POs
 If a Purchase Order is marked as Inventory Disabled, units received will not affect the current average cost.

Note: Weighted Average cost calculation must be enabled.
Rebuild average cost if cost changes on PO If you have a PO that’s received and the average cost is updated, you can go and change the item cost on a PO for its products. Enabling this setting will account for those changes and update the average cost for the products accordingly.

Note: Weighted Average cost calculation must be enabled.
Do not consider over received PO qty for average Cost
 If you have a PO with a certain quantity ordered, the average cost will be calculated for the quantity ordered only, no matter how much quantity was actually received.

Note: Weighted Average cost calculation must be enabled.
Do not adjust Avg Cost when receiving Credit Memos If you receive Credit Memos, the average cost will not be affected.

Note: Weighted Average cost calculation must be enabled.
Enable PO Price as AverageCost for specific Vendors  This will add a new checkbox on the Vendor details page called Treat PO Prices on Average Cost.

If you have a PO connected to a vendor (that has this enabled). Then, regardless of the unit cost on the PO, the average cost will not be affected.

Note: Weighted Average cost calculation must be enabled.
Do not create average cost for inventory adjustments The Inventory Cost entered in inventory adjustments will not be taken into consideration when calculating average cost.

Note: Weighted Average cost calculation must be enabled.
Enable ignore specific warehouses from average cost movement  You will be able to specify which warehouses you don’t want to affect average cost calculation (when receiving POs in them etc.) Once you enable this Client setting, a new setting will appear on the Warehouse details page called Ignore inventory when calculating average cost. (If you don’t see it in Delta, it’s in Alpha). You can then set which warehouse you want to ignore.

Note: Weighted Average cost calculation must be enabled.

Does Average Cost differ from Gross Cost?

Yes, the latter excludes quantity from its calculation:

Gross Cost – Average of the Adjusted Price + Extra Cost (Per Unit) + Extra Cost (PO Based Per Unit) for the product from all previous POs.

You can see  Gross Cost on the product’s Summary  (show me where), but only if you select Enable PO Based Extra Costs in the Client Settings.

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