Stock and costing
How average cost is calculated
Rocket ERP values stock at a moving average cost per item. See how purchases, manufacturing and corrections change it, and how it reaches the cost of goods sold.
3 min readLast updated
In this article
Each item has one cost price, the value of one base unit in stock. Rocket ERP keeps it as a moving average: every receipt blends the new cost with the cost of what you already hold. Sales then take stock out at that average.
The formula
When a purchase invoice adds stock, the new cost price is:
(current cost × quantity on hand + cost of this receipt) ÷ (quantity on hand + quantity received)
The quantity on hand is the item's total across all branches and warehouses, so the item has one cost for the whole company.
A worked example
Step | Quantity | Unit cost | Stock value | Average cost |
|---|---|---|---|---|
Opening stock | 100 | 10.00 | 1,000 | 10.00 |
Purchase | +50 | 13.00 | 1,650 | 11.00 |
Sale | -60 | 11.00 | 990 | 11.00 |
Purchase | +90 | 12.00 | 2,070 | 11.50 |
A sale never changes the average. It removes stock at the current average, and that amount is the cost of goods sold on the invoice.
What counts in the cost of a receipt
The line amount after the line discount, divided by the quantity in base units.
A tax set as Added on cost price under Administration › Organization › Taxes is added to the cost. Other taxes go to the tax account and do not touch the cost.
Lines entered in a larger unit are converted to the base unit first, so a carton price is spread over its pieces.
The system also keeps the item's last purchase cost separately. It does not replace the average.
Other events that change the cost
Event | Effect on the cost price |
|---|---|
Purchase invoice | Blended into the average as above |
Deleting a purchase invoice | The average is rebuilt from the remaining purchases |
Work order completion | The finished product's cost, including materials, labor and overhead, is blended into its average. See Manufacturing costing |
Inventory revaluation | Replaces the cost and posts the change in value. See Revalue inventory |
Editing the cost on the item form | Replaces the cost with no entry. Avoid it once the item holds stock |
Sale, transfer, quantity adjustment | No change. They move stock at the current cost |
Where you see the cost
On the item profile, in the prices on the Overview tab and the cost recorded with each movement on the Logs tab.
In the inventory valuation report, which multiplies each balance by its cost. See Inventory valuation report.
Common questions
Why did my cost jump after a purchase? A small purchase at a very different price can move the average a lot when stock on hand is low. If stock was zero before the purchase, the new cost is that purchase's unit cost. A negative balance before a purchase distorts the average, so correct negative stock before you receive new goods.
Is the cost different per branch? No. Each item has one average cost for the company. Stock in every branch is valued at it.
Can I switch to FIFO or standard cost? Inventory is valued at moving average cost.