How does average costing work?

Pulse Commerce allows 2 kinds of costing for product SKUs. This is a setting that is selected on SKU creation and cannot be changed.

1. Fixed costing
Here, the cost of the product is set on the Product Editor simple tab. When costs are inserted for the SKU, the base cost value is replaced.

2. Average costing
Under average costing, the system will average all the costs for inventory as it's inserted for this SKU, to find the average cost and display that under the product editor's simple tab.

For example, starting from 0 qty, if there is a PO receiving 10 qty at $10, the average cost is $10. If there is an inventory adjustment adding 5 qty at $25, the average cost is now $15 (10x10+5x25/15).

One key element of note, is what happens when the last qty of a SKU with average costing is sold. When qty hits 0, the cost becomes 0; otherwise there would be a divide by 0 error. 

The first new influx of quantity for the SKU will again build the average cost.