Average cost is what one unit of your stock is worth to you right now. Brahmin Solutions works it out from what you actually paid across every delivery, and updates it each time more comes in.
You will see it called MAC, short for Moving Average Cost.
How it is worked out
Every time you receive stock, Brahmin Solutions adds up what everything is worth and divides by how many you have.
You have 40 saddles that cost $18.00 each — worth $720.00.
A delivery lands: 10 saddles at $24.00 each — worth $240.00.
You now hold 50 saddles worth $960.00.
$960.00 ÷ 50 = $19.20. That is your new average cost.
Big deliveries move it more than small ones
This is the part worth reading twice, because the obvious guess is wrong.
The average is weighted by quantity. A delivery of 100 pulls your cost much further than a delivery of 1, however expensive that single unit was.
You have 100 tubes at $5.00 each. You buy one more at $30.00.
It is tempting to think the answer sits halfway between $5.00 and $30.00 — $17.50.
It does not. That expensive tube is one unit out of 101:
(100 × $5.00) + (1 × $30.00) = $530.00, and $530.00 ÷ 101 = $5.25.
Your cost barely shifts, because almost everything you hold is still the cheap stock.
What moves your average cost
Event | Changes it? |
Receiving a purchase order | Yes |
Adding stock with an adjustment | Yes — at the cost entered on the adjustment |
Freight or duty on a purchase order | Yes — see below |
Selling and shipping an item | No |
Removing stock with an adjustment | No |
Changing an item's selling price | No |
Selling does not change your cost, and that is the whole point of an average — it tells you what your stock is worth, not what you sell it for.
Freight and duty are part of it
Extra costs added to a purchase order are spread across the items on that order and become part of what each unit cost you. This is always on.
It is why your average cost can sit a little above the price on the supplier's invoice: the invoice is the goods, your cost is the goods plus getting them here.
After you delete a receipt
Deleting a receipt does not rewind your cost to what it was before. Brahmin Solutions recalculates from the deliveries that are left.
Usually that lands on the same number. It will not if some of that stock has already been sold, because the deliveries left are not the set you started with. If a figure looks odd after a deletion, check it against your remaining deliveries before assuming something is wrong.
Buying in another currency
Costs on a foreign purchase order are converted using the rate on that order, and then averaged in. Your average cost is always in your own currency.