How cost price is calculated
What moves a product's average cost, what leaves it alone, and how the weighted average is worked out.
A product's average cost is what Flow Retail thinks your stock is worth. It is held per warehouse, it moves only when stock comes in, and it is a weighted average rather than FIFO.
Three prices, three questions
Sales price
What does the customer pay?
Includes VAT
Purchase price
What does the supplier charge?
Excludes VAT
Average cost
What is the stock I hold actually worth?
Excludes VAT
The purchase price is what you negotiate and maintain. The average cost is derived — you rarely set it directly, and it is the one that drives margin.
How the average moves
When stock arrives, the incoming cost is blended with what you already held, weighted by quantity:
new average = ((incoming cost × incoming qty) + (old average × old qty)) ÷ (incoming qty + old qty)
Rounded to the nearest øre.
Worked example. You hold 10 units at an average cost of 100.00. A delivery of 30 units arrives at 120.00 each:
Incoming value
120.00 × 30 = 3 600.00
Existing value
100.00 × 10 = 1 000.00
Total value
4 600.00
Total quantity
40
New average cost
115.00
The average becomes 115.00, not 120.00. That is the point of a weighted average — one expensive delivery does not reprice everything you already owned.
The four rules
The calculation has exactly four outcomes, in this order:
A stocktaking or an explicit cost adjustment
Overwritten with the new cost. No blending.
You held no stock (quantity was zero)
Set to the incoming cost outright
Stock is going out (a sale, a transfer out, a write-off)
Unchanged
Stock is coming in
Blended, as above
Two of these surprise people:
Selling never changes cost. However much you sell, the average cost per unit stays where it was. Only incoming stock moves it.
A stocktaking overwrites rather than blends. Counting stock and correcting the cost replaces the average outright. That is usually what you want — you are asserting a known value — but it means a stocktaking can move margin on every subsequent sale of that product.
Where the incoming cost comes from
When goods are received, the cost booked per unit is:
The price per unit entered on the receivement line, if there is one.
Otherwise the purchase order's net unit cost in local currency — the line price after any agreed discount, converted from the order's currency.
The fallback is deliberately the net cost rather than the list price. Falling back to list price would value your stock at what the supplier asked before the discount was agreed. See Receiving goods.
Note that freight is part of that cost — shipping is capitalised into the value of the stock rather than expensed separately. See Purchase order.
Why weighted average and not FIFO
FIFO values each sale at the cost of the oldest unit still in stock, so margin jumps around depending on when purchase orders happened to land. A weighted average smooths that out, which makes product profitability readable over time rather than sawtoothed.
The trade-off is that a weighted average will not tell you the exact cost of the specific unit you sold. For retail reporting that is almost always the better bargain.
What this means for you
Check cost per warehouse, not per product. The same product can carry different average costs in two warehouses, because each blends its own receipts.
Enter the real delivered price when it differs from the order. The cost is fixed at the moment of receiving; a correction agreed afterwards does not revalue stock already taken in.
Expect margin to shift after a stocktaking. That is the overwrite rule working, not a fault.
Limitations
Cost is booked when stock is received. There is no retrospective revaluation of stock already in hand.
The average is rounded to the nearest øre on every movement, so a long series of movements carries a few øre of rounding.
Last updated 19.09.2026
Was this helpful?