Average cost in iVend

This article to explain how the costing method – Average Cost works in iVend Retail 

 The average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced. The average cost method is also known as the weighted-average method.

The average cost method uses a simple average of all similar items in inventory, regardless of purchase date, followed by a count of final inventory items at the end of an accounting period. Multiplying the average cost per item by the final inventory count gives the company a figure for the cost of goods available for sale at that point. The same average cost is also applied to the number of items sold in the previous accounting period to determine the cost of goods sold.

Example of the Average Cost Method

For example, consider the following inventory ledger for Sam’s Electronics: 

Assume the company sold 72 units in the first quarter. The weighted-average cost is the total inventory purchased in the quarter, $113,300, divided by the total inventory count from the quarter, 100, for an average of $1,133 per unit.

Calculation: Total Cost of the inventory purchased: 113,300

                      Total inventory units purchased in the quarter: 100

                      So, average cost = 113,300/100 = 1133/unit

Now,                      

1. The cost of goods sold will be recorded as 72 units sold x $1,133 average cost, A = $81,576.

2. The cost of goods available for sale, or inventory at the end of the period, will be the 28 remaining items still in inventory x $1,133, B = $31,724.

Note: This will not alter the total cost of the ledger. One can verify the same by adding A and B.

A+B = 113300