Average Cost in Inventory Management

In JD Edwards EnterpriseOne Inventory Management, sales order costs depend on the current average cost, not the period average cost. The timing of a purchase also significantly affects the cost of the inventory. This table lists information for two receipts:

Receipt Date	Quantity	Price Per Item	Total Price
January 1, 2010	100	1.00 USD	100.00 USD
January 15, 2010	100	2.00 USD	200.00 USD

You calculate the effect of the purchase price on the cost of inventory for this example as follows:

The average cost per item is 1.50 USD, which you calculate using this equation:

(100 + 200)/200 = 1.50 USD

On January 15, 2010, you sell 50 items for 1.50 each, for a total sales price of 75.00 USD. The average cost per piece is 1.50 USD, which you calculate using this equation:

225/150 = 1.50

If you had made the sale before you received the second receipt, then the cost that appears on the sales order would have been different, and the entire value of the stock would also have been different.