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How ManagerPlus Calculates Last Cost / Avg Cost

  • Buy 20 widgets for $10 each. You now have 20 of those widgets on the shelf, you spent $200.00 for that inventory (# of units) x (last cost paid), or in this case 10x20=$200. The average cost of each of the widget is $10.00. Logically the total value is $200.00.
  • Now we add another 20 widgets to our inventory; except this time they cost $20.00 each. Hence, we are adding $400.00 of value to the inventory; we then have 40 widgets on the shelf and have paid $200.00 for 20 of them, and $400.00 for the other 20. The total value (cost) of the inventory is now $600.00, the math is: (20 widgets x $10) + (20 widgets x $20) = $600.00. The average cost is then calculated by dividing the total number of units by the total cost, ($600 / 40) = $15.00. So, each widget on the shelf cost an average of $15.00.
  • Now, let’ suppose I have my management system set to markup the cost when selling each widget by 100%, basically double the cost to determine the sale price. If I have my system set to determine Sale Price using Average Cost, each time I use Order Item Edit, the cost will be displayed as $15.00 and the sale price will be $30.00. With 1 widget sold, the inventory would include 39 widgets, which would have a value of 39 x 15, or $585.00.
  • Now let’s suppose the system is set to calculate the sales price by Last Cost. The last cost (the last price paid) as we know is $20.00; when you enter the widget in Order Item Entry, the cost displayed will be $20.00 and the sale price will be $40.00. Assume we didn’t do the previous example and after selling one widget we have 39 in inventory. The cost or total valuation of that inventory is still calculated as 39 x 15 or $585.00, even though we used a ‘cost basis’ of $20.00 to determine the sale price.
  • ManagerPlus also understands the concept of zero on hand inventory. Suppose you purchased the original 20 widgets for $10.00 each – the average cost of each widget of course is $10.00 for a total inventory valuation of $200.00, and the last cost would be $10.00. Suppose you sell all ten widgets, and purchase an additional 20 widgets for $20.00 each. The inventory valuation would then be 20 x 200 or $400.00. The average cost would be updated to $20.00 each and the last cost will then be updated to $20.00.
  • Similarly, purchase the original 20 for $10 each. Sell off 15 of them. Purchase 20 more at $20.00 each. The inventory value is now (5x10) + (20 x 20) or $450. The average cost of each widget now becomes $18.00 (450 / 25). The last cost is $20.00 and the average cost is $18.00.
  • If manager retails one widget based on Average Cost – the sale price using a 100% markup would be $36.00. If manager retails one widget based on Last Cost – the sale price would be $40.00. The total inventory value in either case would still remain $18.00 times 24 widgets, or $432.00.
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