Average Cost Changes for Inventory Products

average cost changes

Having multiple ways to make average cost changes makes it easy for you to obtain the asset valuation of your products. The average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced. The average cost method is also known as the weighted-average method.

Businesses must have a good understanding of what the landed cost of imported products will be in advance so that they can make smart decisions for their business.  If a business is planning to import products and resells them in their market, then they must have a good idea of what the actual final landed cost is for each item.

Understanding the landed cost of imported products allows a business to plan how much capital will have to be invested to purchase products and get them delivered through to location.  On top of that, it also helps businesses to plan their sell prices and profit figures that will eventuate when the products are sold.

If businesses do not take the time to understand their landed cost, they could be faced with unexpected fees and charges which could make importing the products unviable.  Calculating the landed cost requires an understanding of some key costs and correctly applying them to each product to get the final landed cost per item.

Product average changes

There are two ways to average cost changes.  You can update the te average within the Finale interface or you can perform a bulk import.  Both methods are meticulously described in the video below.

Video Transcription

Hello, Mike Kroeger here, Finale Inventory. In this short video, we’re going to discuss average cost changes, how and why you would want to use them. So, let’s get started. You know, first off someone might say, “What is the average cost? And, you know, what’s it used for in Finale?” Well, average cost is how your inventory is valued, plain and simple. You know, and if you have to make a change to it, you can only do this with a journal entry or a Purchase Order transaction. So, you can’t just go into the product screen or into any other screen in Finale and just tell us what it’s worth or what it’s valued at. You got to use a Purchase Order or a journal entry. And then, of course, remember average cost is a per-unit value. All right? So, it’s what one unit is worth.

So, what’s an average cost change? You know, so it’s just to update or change the average cost of a stock item for the purpose of establishing or changing what that item is worth. You know, why would you do this? Of course, we said, to establish how much it is worth. But, you know, when you bring in your beginning stock levels with a Stock Take or a Stock Change transaction, you do not tell us how much it’s worth. So, that’s why you would use it to value that item. You also might use it to correct a previous stock items’ valuation. So, someone made a mistake or maybe it needs to change for some reason back in history or back in time. And then you also may have situations where you need to establish a value for stock items that are in your inventory that have never, ever been purchased with a purchase order.

And you might think of, “Well, how do they get in there?” Well, they may have got in there with a return to inventory. So, you set up your account, you created the part number. You never did a Stock Take or Stock Change because you didn’t have any. And then, all of a sudden, somebody did a return and it came into the database. So, now you’ve got a unit in inventory that didn’t have a value and you haven’t bought, and you haven’t purchased it either. So, this is yet another reason why you would need to do an Average cost change. So, you would use it for that function.

So, how can you do it? Well, you can do them manually, one by one, in groups from the Average Cost Change screen. And you can also import from a spreadsheet, makes it really simple. All right? So, let’s go show you how to do these two things.

So, let’s jump into Finale Inventory here. So, I’ve got a database here. The feature is here at the bottom of the inventory column, so you’ll see it here, Average Cost Changes. You’ll also see it up here on the navigation bar. But let’s kind of look at the data, so you guys have an understanding of what we’re talking about. So, I’ve got a shortlist of items here. So, I got some T-Shirts and I got some shirts and some of these items have costs and some of them do not have costs. Some of them have zero on-hand, which you’d understand why there wouldn’t be an average cost, but also have some with some units on-hand. So, maybe I imported these, these are my beginning stock levels for starting Finale Inventory. And you see, there’s no average cost established for these. All right? So, this is what we need to correct because there’s no valuation for these. So, let’s show you how to do that.

So, also, just kind of bringing it up to you, you can kind of see what we mean by “hasn’t been bought yet.” So, you know, I can see that we did buy these, there’s the last purchase date and the last purchase price in here. So, that’s why these would have it established. These other ones haven’t been bought yet. Okay? So, that’s the explanation for, you know, either some units that got into stock, but we don’t know what they’re worth. So, let’s go see how this transaction works.

So, let’s go up here to Inventory, Average cost changes. We’re going to create a new batch one, take a system-generated ID, or you can make up your own. So, it’s just using a unique identifier for the transaction. So, I’m going to take the system generated. Now, the most important thing here that you should consider is this Effective Date. So, when you use this feature, you got to tell us when it should apply because you can apply it for the wrong date like it’s defaulting here or there’s 9/17. Well, that’s tomorrow. So, we don’t want to do that. So, let’s kind of go back in time. You might say, “Well, how do I know what date I should use?” Well, it should be on the same date that you imported this stock or the day before you imported the stock or to take effect on the day that you want it to.

And you might say, “Well, how do I know all these things?” Real quick review here. So, go here to Stock History. In your Stock history screen, it’s going to tell you all transactions. So, I can see when things were done. So, I can see here that somebody did a stock take, you know, earlier today on product 111 and 222, and they put these units in, but you see there’s no value because you can’t establish a value on the stock take or the stock change. So, we said, “Okay, well we need to do one for maybe earlier today. Or, you know, maybe we will date it for yesterday and put a value in for these so that these will have a value.” But then you may want to need to go back way back in time. So, you can look up here what the first date. Maybe you need to go really far back in time. So, you can backdate it as an effective date of 2/5. Okay? So, that’s the tip on how to find out what date. So, let’s just make one for 9/15 for this example.

So, we’re going to come back here. So, we’re going to go back into this draft. So, notice that’s a draft status, which means it hasn’t applied yet. So, I’m going to reopen this up. And so, we need to edit this. Now, you can double click on the screen to get in edit mode or you could, there was an edit button up here at the top. So, I’m going to make sure that this date is for yesterday. Okay? And then I’m going to establish this for that product that we had in stock. I think it was 2222. So, if I go and I say, “Hey, look, I’m going to change this.” Notice that it tells me, on that date, it was zero. So, I better put a value in. So, this is my white polo shirt, so we’ll give it $15.23. And it will tell us, “All right, we’re going to get a result.” That’s our resulting average cost for the object. So, let’s do a note. We’ll just say, “Enter the cost.” And then I can put a note down here, maybe of why I did this, “Establish valuation of inventory.” All right?

So, if I record that, I can save those changes. And notice I saved the change, but I haven’t posted it. So, posting it is very critical. It doesn’t apply until you post it. So, let’s exit this and kind of check this out. We’re going to do this to 222 and we’ll see that, you know what? Here is 222. We do have some in inventory, but there’s no value, but I haven’t posted it. So, let’s jump back here. Let’s go to the Average cost, enter this transaction, and let’s post it. So, it’s going to warn you about what this is going to do. So, make sure that you got things right. We’re going to post it. Now, that it’s posted, I could print it off if I wanted to. If I want to print this off, I can see it as a document. I could have this for my record to give it to my accountant or my CPA.

So, it is in the system and it shows that it’s posted. If I go over here to the Stock screen, you’ll see that, hey, we’ve got a value now. And we can see that it’s now providing the right valuation for our stock. So, that’s how you do it one. Well, you might say, “Well, can I do more than one at a time?” Sure. You can do the same thing. So, let’s go do it for these two top items here, 11 and 22. So, it’s really just the same thing. I can say, Create. Use the system generated. And remember what date we want it for. Well, let’s do these for today. So, I’m going to establish these for today. And then I can double click here and get a list or I can just type it in. So, let’s do 111. And then let’s do 222. You can see how quickly you can put them in. And we can establish the values here, $5.23, $5.86, is how much we want these to be worth.

I’m not going to bother doing the notes right now, and I can just go straight to Post. All right? So, I can make a very quick adjustment across multiple items. And we can see that this one is posted. This one will update here that it’s posted, and you can see that this one’s applying to multiple products. So, if we see that we have posted it, we come back to this screen here, it’s posted, it’s multiple products, and we can see that this one was just one. All right?

And also you can do a search. So, if we had to search, we could say, “111,” it is indexing that this one did have that product on there. Okay? So, that’s a tip to how you can find these changes. Let’s go look in here and see the results. And you can see that we’ve established a valuation here. Now, you might say, “Okay, Mike, I got a whole lot to establish. I got a bunch of zeros on the database. How would I do that?” Or maybe you’re going to be bringing in stocks. So, how can you do it in bulk? Well, let’s go show you how to do it from an import from a spreadsheet.

So, there’s a link here, Import Average Cost Changes. So, pay attention here. You’ve got a paste box here, and you can see the supported column titles here. So, we need to establish a journal entry ID. So, that’s required, and then we need an effective date, and then probably, we need to say what we expect the average cost to be, and the product ID. All right? So, these are going to be the required ones. So, you make sure you use these column titles, but if not, our system is pretty easily manipulated. So, let’s go check out my sheet here. So, you know, as we establish, you know, we know we’re going to have to make a journal entry. So, I may say this is my Journal ID, and I may make this, you know, my initials, MJK-01. So, I can make this my ID here or my journal entry if I wanted. So, as I copy this, I can bring this in. All right.

So, we got some data here on the screen. And if you were saying, “Okay, we were going to create some new products. So, how would that happen?” Of course, I’m going to show you this because these have to be in here. So, I’m going to copy all of this data. So, the other thing that we would need also is the effective date. So, if I say, “Effective Date,” and we’re going to do this today, so we’ll do, 9/16/2020. All right? And let’s take this date and copy this all the way down. All right. So, now we have the data that we might need to import some new products, get them in the database, get the stock in the database, and establish the value.

So, this is going to take three imports. Okay? So, watch what we’re going to do here. We’re going to copy the data. We’re going to come to Finale Inventory. Now, we can’t make a journal entry adjustment for products that are not in the database. Okay? So, the first thing we would need to do is go to the Products screen and import our new products. So, I can import from a spreadsheet, right-click, Paste. Okay? So, notice that these are new products, so it’s just going to create them. It’s going to give us our product numbers, our descriptions, establish a T-Shirt. Now, the cost is not a good column, so we can establish the cost of them. Now, we can store that cost in a field, but it doesn’t really affect the value. I can’t bring in quantity when I’m creating products. Okay? And I’m not going to be using the sublocation of the journal entry of the effective date when I create products. So, I can just ignore this. I’m just going to create new products.

We have new products in inventory. So, notice how we have new shirts and stuff, all these rights here. Of course, now we need to get the stock levels in. So, if I looked at my stock levels on all these new shirts here, I need to get the stock levels in. So, we’re going to do that real quick. So, we’re just going to go to the Stock takes screen. I’m going to import, I’m going to do my Next, and do my Paste here. Let’s bring in… Here are my part numbers, these are the quantity for my beginning inventory. And this is where they’re going to go into the system. Now, of course, our system is ignoring all these columns that I put in my spreadsheet. So, I’m just going to hit Next and commit.

So, we now have the stock takes in there and you can see how we’ve got our stock levels in here. And they’re in all different locations. Still don’t have a value. So, now this is where we’re going to use the import for the valuation to getting the value of all that inventory that we brought in. So, here we go to the Inventory, Average Cost, we can import, we’re going to right-click and paste. I don’t have all the right titles here, so we’re going to have some issues. So, here, we don’t need a description. So, we don’t need that. What’s key here is the part number. Okay? So, another thing that it’s kind of telling us we got, maybe, some other problems. So, one, I need to tell it that this is what I want my expected average cost. So, I kind of called it, Cost. So, I took care of that problem right there. Quantity is not needed here, so we’re just trying to establish what we want them to be worth. Neither is all of these others. Now we do need that Journal ID. So, it’s supposed to be called Journal Entry ID. So, I’m going to use that one. And then, of course, it did find Effective Date.

Now, it’s just exiting out the rest of the rows because it’s going use the same effective date for all the records in this transaction. So, as soon as we get the data that we want in here, we can say, Start Import, and it will bring it into an average cost change transaction. So, I’m going to go into here, and you’ll see that the one that we just imported is right here. So, you can see it brought it in. It took in all the information, used the date that we told it, and all the expected valuations, and it changed what it did. All right? So, we could print that out. But now you can kind of see, if we go to our Stocks screen, we now have the stock valuation for all the items that we have in inventory.

So, that’s it. That’s as easy as it is to adjust to the valuation of your stock or make average cost changes.

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