Why is my Average cost incorrect or not what I expect?

Finale Inventory uses a system calculated weighted average cost.  This average cost may contain landed costs if you so choose.   The average cost is calculated when any of the following three transactions occur:

• A user creates an Average Cost Change transaction using the user interface manually or bulk imports one
• A user receives a shipment against a purchase order using the user interface, import, or mobile scanner
• A user assembles a product with a bill of materials using the user interface manually or bulk imports one

If you never perform any of the above steps and you add inventory into Finale Inventory using a Stock Take or Stock Change transaction, you will not be valuing your inventory correctly and will most likely end up with an incorrect average cost calculation.

The proper order of events for adding products or new inventory items to Finale Inventory is as follows:

1.  Create the Product id in the Product table - manually or import
2. Establish an average cost for this product id using the average cost change transaction or buy it on a purchase order and receive it, or build it with a build
3. Add stock level to Finale Inventory for this product id using a stock change or stock take transaction or receive it on a PO shipment

Most common inventory mistakes:

1. You shipped a sales order shipment before you had any quantity on hand or not enough quantity on hand
2. You added stock levels to Finale before you told Finale what it was worth(Average cost change)
3. You never created a PO or an average cost change transaction
4. You built a finished good product with components that had no average cost
5. You canceled a historical transaction

Remember that Finale Inventory is a perpetual inventory system so the date and time of your actions and/or transaction creation matter.   It is possible for you to have stock quantity on hand of a product(SKU) that is worth nothing for a time and then you add the "cost" to the system later.  While this appears to have fixed your problem, if you were to run a report for the time period there was no cost established your inventory would be valued at zero, and if you run the same report for the later time period the same inventory would then have a value.  You may think the inventory system is giving you the wrong answer but it is not. It is simply reporting what you told it in time.

You may see items in your inventory that do not have an average cost at all, or maybe the average cost is not what you expect.

The number one reason average cost may be incorrect is you received inventory on a shipment against a purchase order when the stock on hand of that item was negative.

In an effort to help explain to you how Finale Inventory would show a higher-than-expected average cost for an item, please see this picture.
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Finale Inventory has a general ledger that it must balance.
This example shows what happens to your Average cost when you Receive a Purchase Order shipment into inventory when your current QoH is Negative.
The system must balance the books at the expense of future transactions.

You can see the current value of your inventory on the Product id Details page in the section called Valuation.  You can also make changes to the average cost per unit by using the Change Average cost feature. How do I change or updated the Average Cost for an item?

If you use the Stock History view screen or the General Ledger view screen you will be able to see the Average cost mistakes as Warnings.  You can filter for Average cost mistakes. You will then be able to make corrective transactions to fix the negative stock situation and or create an Average cost change journal entry.

To fix negative stock situations you must use various stock transactions to fix the negative inventory for the time period it went negative.  The most common situation is you connected your Finale Inventory account to your shopping cart or marketplace and allowed it to import historical sales orders that shipped stock out of inventory prior to you having your beginning stock levels in Finale Inventory.  This means you were shipping inventory you did not have.

NOTE: If you need to back date and put stock into Finale Inventory, this can only be done with a backdated Stock Change transactions. You cannot use a backdated Stock Take.  When correcting stocklevels for a date in the past, the stock level change must be used and it is an OFFSET or DELTA to that stock level on that date in time. 

Another situation that is common is that you are shipping shipments for a sale before you receive the shipments against the purchase orders in to your warehouse.

Also, watch out for canceled historical transactions.  When you cancel any stock transaction, like a purchase order, the shipments against that purchase order are also canceled. If the PO shipment is canceled then the units that were received are now gone. If someone cancels a PO from a month ago or two years ago, all the stock that was on that shipment is removed and your stock levels are lower.  This will cause numerous items to go negative backward in time and cause havoc on your average cost calculations.  You may use the filters on the Stock History screen to find these canceled transactions color-coded in red.