# Average Cost

Average Cost is the cost of units continually averaged. Costs are averaged from the price on the purchase order at the time the PO is received.

There are two 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 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. Learn how to average these costs into item cost.

Learn how to adjust average cost in Sellercloud.