Items in your inventory have a system-calculated average cost, which is the range in which a product price falls. When you receive additional products into your on-hand quantity, the cost of the product, plus any freight charges are factored in the average cost.
For example, you have an on-hand quantity of one for a product with a current average cost of $0.00. You receive one of the products with a cost of $10.00. The new system calculated average cost is $10.00.
However, you can figure on-hand quantities with an average cost of $0 into the calculated average cost when you receive items into your warehouse. Set the Include Item With Zero Average Cost in Average Cost Calculation control maintenance record to Yes to include any on-hand inventory with a $0.00 average cost in the average cost calculation.
For example, if you have nine of a product on hand with a current average cost of $0.00, and you receive one on a purchase order with a cost of $10.00, the new average cost is calculated as follows:
$1.00 ($0.00*9 + $10.00*1) / (9 + 1)
Freight charges applied to a purchase order may also affect average costs. For additional information about applying freight costs to items you receive on a purchase order, see Editing Freight Charges on Purchase Orders.
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