Please skip this resource if you do not plan to use Finale for your cost of goods and inventory valuation.
The concept of average cost is an important one in economics and business, as it can help organizations make informed decisions about their pricing, production, and profitability.
Aside from having an accurate view of your costs, another important application of average cost is in setting prices. By knowing their average cost per unit, businesses can set prices that are competitive, yet still allow them to make a profit. This is particularly important in markets where there is significant competition, as businesses must balance the need to offer attractive prices with the need to cover their costs.
Finale’s weighted average cost method assigns a cost to inventory items based on the total cost of goods purchased divided by the total number of items purchased.
Overall, the concept of average cost is a valuable tool for businesses and organizations, helping them to understand their costs, optimize their production, and make informed decisions about pricing and profitability.
- Purchase Orders
- Manufacturing Builds
- Average Cost Change (Onboarding Method)
How-to Assign Average Cost with Purchase Orders
Finale uses an average weighted landed cost to determine your valuation. This is a calculated cost defined by your purchase orders and assigned automatically on the shipment. The purchase order screen is your master cost center, regardless of a bill or financial document.
As notated below, Finale does use an average weighted landed cost, allowing the user the opportunity to roll-up their adjustment costs into their inventory value, accounting for the true cost to receive items.
How-to Assign Average Cost with a Manufacturing Build
If you manufacture finished goods from raw materials, then the average cost of the raw materials received will be rolled-up into your finished goods when a build is completed based on the bill of materials. This is only relevant if you use the build feature in Finale to produce finished goods.
Please keep in mind this only includes the cost of your products. It does not take into account labor and waste, as this is only a light manufacturing tool.
How-to Assign Average Cost with a Manual Average Cost Change
The last method, and most commonly used method during the onboarding process, is the average cost change. This option allows the user to input the average cost of your products with an effective date. This can be performed by manually entering each cost on each product line within the average cost change screen, or you can use a two column spreadsheet (product ID and average cost) to import the costs in bulk.
Finale recommends that you back date your average cost change to a date prior to when inventory enters the system, so that your inventory enters with an initial cost level, ensuring your cost information is accurate from the beginning.
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