Problem: What is the reason of Average Cost Price change during Month End Closing?
Solution: 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.
The example of average cost price calculation will be described below example when Sales, Purchase, and Additional Expenses are resented in the same month and Month End closing makes the equation of the item's cost price:
On December 1st, the item had a balance - of 10 QTY. The average Cost Price (further ACP) is 10 AED.
Then on December 2nd, 5 qty of items have been sold. As ACP at the invoice issuing time was 10 AED the system has deducted 50 AED from item stock:
Later on, the 5 qty of items by the same price have been purchased and additional expense occurred during the purchase so the AVG became 11 AED ((The sum of the purchase amount and additional expense by the total qty available i.e. 100+10)/10)
But as of the time of the Sales Invoice posting the opening ACP (at the beginning of the month) has been deducted from the stock, the system is making the equation during month-end closing and deducting the actual item cost for this sale. It's taking all stock balances during the month and calculates ACP, i.e. Total qty=10(opening qty on December 1st)+5(Purchase during the December)=15, total balance = 100AED (opening balance on December 1st)+ 50 AED (Purchase during the December)+10 AED (additional expense on purchase) = 160 AED. ACP = 10,66666667 AED.
As during the sales document posting only 50 AED (10 AED per item) was deducted, the system should equalize this cost, i.e. Cost correction = (10.66666667*5) - 50 = 3.333333 AED:
And the ACP changed accordingly , 110 - 3.33 = 106.67/10 = 10.67 AED:
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