---
title: "Troubleshoot Average Cost Calculation"
canonical: "https://kb.myframeworks.com.au/space/CO/390168578/Troubleshoot%20Average%20Cost%20Calculation"
format: markdown
---
This guide helps you verify Average Cost calculations in Frameworks are correct.

> ⚠️ This guide only applies to Average Costing environments. Standard Costing environments use different calculation methods.

---

## How to Verify Average Cost Calculation Is Correct

**Symptoms:**

- Need to verify system is calculating Average Cost correctly
- Want to understand why Average Cost changed after a receipt
- Investigating unexpected Average Cost values
- Training staff on Average Cost calculation process

**Verification procedure:**

1. Navigate to **Inventory > Enquiries > Product Dashboard**
2. Search for the product to verify
3. Click **Stock Movements** to view movement history
4. Identify a stock receipt to verify
5. Note the values before the receipt:
  - Current stock on hand (SOH before)
  - Current Average Cost (Avg Cost before)
6. Note the receipt values:
  - Quantity receipted (Receipt Qty)
  - Unit cost on receipt (Receipt Unit Cost)
7. Note the values after the receipt:
  - New stock on hand (SOH after)
  - New Average Cost (Avg Cost after)
8. Perform the calculation manually:

**Step 1: Calculate Current Valuation**

```
Current Valuation = SOH before × Avg Cost before
```

**Step 2: Calculate Incoming Valuation**

```
Incoming Valuation = Receipt Qty × Receipt Unit Cost
```

**Step 3: Calculate New Valuation**

```
New Valuation = Current Valuation + Incoming Valuation
```

**Step 4: Calculate New SOH**

```
New SOH = SOH before + Receipt Qty
```

**Step 5: Calculate New Average Cost**

```
New Average Cost = New Valuation ÷ New SOH
```

9. Compare your calculated New Average Cost with the system's Avg Cost after
10. If values match, the calculation is correct
11. If values don't match:
  - Check if Average Cost Adjustment was processed at the same time
  - Verify no manual cost changes occurred
  - Check if multiple receipts processed simultaneously
  - Review if kit assembly affected the product during this period

**Example calculation:**

Product has 10 on hand at Average Cost $15 = $150 valuation Receipt 10 units at $20 = $200 incoming valuation

```
Current Valuation: 10 × $15 = $150
Incoming Valuation: 10 × $20 = $200
New Valuation: $150 + $200 = $350
New SOH: 10 + 10 = 20
New Average Cost: $350 ÷ 20 = $17.50
```

**When to escalate:** If manual calculations consistently don't match system values, contact Support.

---

## Average Cost Calculation With Negative Stock Example

**Understanding the impact of negative stock:**

When stock on hand goes negative, the Average Cost calculation still applies but can produce unexpected results because negative quantities create negative valuations.

**Scenario:** Product sold before receipt arrived

**Starting position:**

- Stock on hand: 10 units
- Average Cost: $10
- Current valuation: 10 × $10 = $100

**Transaction 1: Sale of 15 units**

- Stock movement: -15 units
- Cost: $10 (current Average Cost)
- New stock on hand: 10 - 15 = -5 units
- New valuation: -5 × $10 = -$50 (negative valuation)

**Transaction 2: Receipt of 10 units at $20 each**

Apply the Average Cost formula:

```
Current Valuation: -5 × $10 = -$50
Incoming Valuation: 10 × $20 = $200
New Valuation: -$50 + $200 = $150
New SOH: -5 + 10 = 5
New Average Cost: $150 ÷ 5 = $30
```

**Result:** Average Cost is now $30, significantly higher than either the previous Average Cost ($10) or the receipt cost ($20).

**Why this happens:** The negative valuation (-$50) creates a debt that must be recovered. When the receipt comes in, the positive valuation ($200) must cover both the negative valuation and create the new positive valuation ($150).

**To prevent this issue:**

- Receipt stock before processing sales when possible
- Monitor products with low stock levels closely
- Consider using stock reorder processes to maintain positive stock
- If negative stock occurs regularly, consider switching to Standard Costing

**To correct this issue:**

- Process Average Cost Adjustment to set correct Average Cost
- Review sales and receipting processes to prevent future occurrences
- Consider adjusting reorder points and safety stock levels

---

## Average Cost Recalculation During Stocktake Apply

**Understanding the impact of stocktake apply:**

In an average costing environment, applying a stocktake can change a product's average cost. When a stocktake is applied, the stock adjustment uses the average cost held against the stocktake - the snapshot cost for a full stocktake, or the count line cost for a partial stocktake - rather than the current average cost.

If the product's current average cost has changed between counting and applying (for example, because stock was receipted at a different cost in between), the system reaverages the product's average cost during the apply so that the stock on hand valuation remains accurate.

**Scenario:** Average cost changes between counting and applying a stocktake.

**Starting position:**

- Stock on hand: 10 units.
- Average Cost: $10.
- Current valuation: 10 x $10 = $100.

**Transaction 1: Stocktake counted at 12 units**

- Snapshot cost at count: $10.
- Variance quantity: 2 units.
- Variance value: 2 x $10 = $20.

**Transaction 2: Purchase order receipted for 5 units at $20 before the stocktake is applied**

```
Current Valuation: 10 x $10 = $100
Incoming Valuation: 5 x $20 = $100
New Valuation: $100 + $100 = $200
New SOH: 10 + 5 = 15
New Average Cost: $200 / 15 = $13.3333
```

**Transaction 3: Stocktake applied**

The stock adjustment uses the snapshot cost of $10, not the current average cost of $13.3333. Stock on hand increases from 15 to 17.

```
Stock Value after adjustment: $200 + (2 x $10) = $220
New SOH: 17
Reaveraged Average Cost: $220 / 17 = $12.9412
```

**Result:** The product's average cost is reaveraged to $12.94, and the GL posting matches the $20 variance value shown on the stocktake.

**When to escalate:** If the average cost after a stocktake apply does not match the variance value shown on the stocktake record, contact Support.

---

> ✅ ## Related Information
> ✅ 
> ✅ - [Understanding Costing Methods in Frameworks ](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28390208)- Detailed explanation of Average vs Standard Costing
> ✅ - [Configure Costing Method](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/390070273) - How to configure Average Costing environment
> ✅ - [Product Maintenance - Field Definitions](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28378114) - Where Average Cost is stored
> ✅ - [Stock Movements - Field Definitions](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28409382) - Understanding movement transaction types
> ✅ - [Average Cost Adjustments](https://sterlandsupport.atlassian.net/wiki/spaces/FRAM/pages/28384044) - How to manually adjust Average Cost when needed