Average Inventory Cost effect on profit

Average cost is calculating wrong profit value, how can i fix this. As per my purchase cost, my profit is 25700 but the profit calculating from avg cost and that is not matching with purchase cost.

Screenshot 2019-10-14 at 2.52.57 PM.png
Screenshot 2019-10-14 at 2.53.45 PM.png
Screenshot 2019-10-14 at 2.54.42 PM.png
Screenshot 2019-10-14 at 2.55.16 PM.png

Manager uses Average Cost for valuing inventory and calculating Cost of Sales.

No other option is proposed

1 Like

You have not explained what you think is wrong or why you think that, @hd2flex.

The average cost in your 2nd screen shot is the result of all previous transactions affecting this inventory item. Your quantity on hand is only 386, while your first screen shot shows a purchase of 500. So you have clearly had other transactions. The display is also rounded to two decimal places.

Your subject line says this topic is about average inventory cost effect on profit. But you have not given any information or asked any question about profit calculations. What do you want to know? And what do these screen shots have to do with that?

@Tut i m talking about average cost, not about Qty
question is manager should calculate profit from unit purchase cost, why its calculating profit with average cost.
see the unit cost is 257 and average cost is 256.92
profit calculation with unit price 25700
profit calculation with avg cost 25691

Why? -Because that is the inventory process that Manager uses.
In accounting you have three options - LIFO, FIFO and Average Cost.

Why don’t you click on the blue 386 quantity and then you can see all transactions that make up the average cost.

I mentioned quantity only because it proves there have been other transactions you did not show that would affect average cost.

The expense for the cost of goods sold is entered automatically using the average cost at the moment of sale, not some cost related to any single purchase transaction. If you do not fully understand the perpetual moving average cost method for valuation of inventory, there are many descriptions of it on the internet.

@Tut I m not using cost of goods with any purchasing, cost of goods i m putting as a expense, forget it.
issue is that inventory i buy first time in 250 and second time buy same inventory 260, now avg cost calculating between thees two value.

Yes, Manager does this for you automatically, transferring the cost of goods sold to the Inventory - cost account. You are correct that cost of goods sold does not figure into a purchase in any way. The cost of goods is an expense that is recorded at the time of sale. Until then, the value of the goods is lodged in the Inventory on hand account as an asset, at the average cost of the item.

That is not what your screen shot shows. It shows a purchase invoice for 500 units.

@Tut is there any option to solve this between two difference prices [avg cost] of same inventory which is purchase with two different purchase invoice in different dates.

No. There is nothing to solve. Manager uses the average cost inventory valuation method. It applies this method correctly and accurately. There are no other options, as you have already been told. I honestly do not understand why you think there is a problem. I asked that question in my first response. If you will not answer, you will not be able to obtain further assistance.