Troubleshooting Average Cost
How QuickBooks Calculates Average Cost
For an inventory item, average cost is the total value of the items currently in stock divided by the quantity on hand. If you have a total Widget value of $20.00 and 10 units on hand, the average cost is $2.00 ($20.00/10).
QuickBooks uses average cost—and not another method such as LIFO or FIFO—to determine the value of your inventory.
Note: This section covers the calculation of average cost for normal and intended QuickBooks use devoid of user entry errors or data file setup errors. The rest of this topic covers the aberrations involved due to user error or changing list information and/or historical transactions.
QuickBooks recalculates average cost during normal QuickBooks use in the following ways:
· When you record the purchase of an Inventory Part Item or the purchase of an Inventory Assembly Item. QuickBooks adds the cost of the new items to the cost of the existing stock and then divides by the total number of new and old items.