Problem: How to track an Average Cost Price of the item?
Solution: Use Balance of Inventory Report as shown.
Item Cost price in FirstBIT software is calculated according to the Weighted average cost method using a System of linear equations.
The cost of each item is determined based on the weighted average cost of similar items at the beginning of the period and the cost of similar items purchased or produced during the period.
Balance of Inventory report shows Average Cost Price (ACP) of the items on chosen date (Purchasing > Reports > Balance of Inventory):
ACP = Amount / Quantity (where amount is calculated as a result of operations and Quantity is a current balance of the item)
To track Average Cost Price of the item, use detailed Balance of Inventory for each item - click on Average Cost Price and choose Recorder:
Balance of Inventory (details) contains information for exact Item, Warehouse at the same date as the basis Balance of Inventory.
It shows a list of documents that have changed parameters of ACP:
Average Cost Price (ACP) is influenced by factors:
Purchase
Sale
Stocktaking movements
1. Purchase
Inward items into system should affect ACP:
- Invoice Received changes quantity and amount
- Additional Expenses does not change quantity, but increase amount
Invoice Received contains expenses that may be included in ACP calculation optionally:
2. Sale
Outward items should not affect ACP:
- Invoice writes off the item using current ACP in the system
In case, if Invoice changes ACP, then there is mismatch in the system:
1) Sales should not be created before inwards as balance is null before sale, so ACP does not appear in the system.
Then register sale after purchase in the system.
2) Invoice Received, or some other inward document, were created earlier than already posted Invoice.
Then Invoices should be reposted one by one in chronological order to write off items with correct ACP.
ACP is recalculated as Amount / Quantity.
3. Stocktaking Movements
Inventory movements influence in two ways:
1) Inventory Transfer does not change ACP
If it changes, then the document should be reposted.
2) Inventory Receipt and Inventory Write Off may affect on Quantity or Amount.
Inventory Receipt may be filled in just by Quantity, by Amount or both of them (it depends on the way of items receipt).
Add current ACP from the system to keep the order:
Or fill Amount Only to increase ACP:
Inventory Write Off may be filled in by Quantity, or by Amount (it depends on such purposes as write off items with bad quality, or reduce the cost as item was damaged, evaluated).
If Quantity reduced, item is written off with current ACP:
Amount Only reduce the total Amount only and change ACP:
Bank Payment, Cash Payment, Invoice Received (for services) do not affect ACP.
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