These two get mixed up constantly, because they sit near each other and both look like "the cost". They answer different questions.
Number | Answers |
Purchase price | What does my supplier charge for this? |
Average cost | What is the stock in my warehouse worth? |
Purchase price
What your supplier charges. You set it on their record, and Brahmin Solutions suggests it when you put that item on a purchase order.
It changes when you change it, or when your supplier sends a new price list. It is a starting point for the next order — nothing more.
Average cost
What one unit of the stock you are actually holding cost you, worked out across all your past deliveries.
It moves on its own every time stock comes in. You do not set it and you cannot type over it.
Why they are usually different
Your supplier charges $18.00 for a saddle. That is the purchase price.
You bought 40 at $18.00 last month. Prices went up, and this month you bought 10 at $24.00.
Purchase price is now $24.00 — what the next one will cost.
Average cost is $19.20 — what the 50 in your warehouse are worth.
Both are right. They are answering different questions.
Which one gets used where
Where | Uses |
Creating a purchase order | Purchase price |
Reorder suggestions | Purchase price |
The value of your stock on hand | Average cost |
Cost of goods sold when you sell something | Average cost |
Profit margin on a sales order | Average cost |
The short version: purchase price is what you will pay next, average cost is what you already paid. Anything about profit or stock value uses average cost.