About weighted-average cost (WAC)

The short answer

• A material's unit cost is the weighted average of what the stock you hold cost you. Every time stock comes in with a cost, Trackost blends the new stock into the average. A tool's unit cost doesn't change.
• Using stock in a batch, selling it or writing it off never changes the average. The two exceptions are a product sold with no stock and no cost from real stock, and a product a batch uses while its count is zero or below: each is costed from its recipe and sets the product's unit cost from the recipe's cost.
• Trackost uses a moving weighted average and nothing else. There is no FIFO or LIFO option.
• A new purchase changes the cost from then on. Past batches and fulfilled orders keep the cost they were given.

What is the rule?

When stock comes in, Trackost takes the value of what you already had, adds the value of what arrived, and divides by the new total quantity:

new unit cost = (old quantity × old unit cost + new quantity × new unit cost) ÷ (old quantity + new quantity)

Everything is per tracking unit, the unit you count the material in: per gram for a wax you buy by the kilogram. Trackost keeps the cost to a thousandth of a cent and rounds it only to show it. Screens show it to the cent, so $0.012 a gram reads $0.01/g.

When stock arrives into an empty shelf, there is nothing to blend: the new stock's cost becomes the unit cost. A tool's unit cost doesn't change.

A worked example

You have 100 g of beeswax that cost $0.10 a gram. You buy 200 g more for $26.00, which is $0.13 a gram.

• Value before: 100 g × $0.10 = $10.00.
• Value added: $26.00.
• New quantity: 300 g.
• New unit cost: ($10.00 + $26.00) ÷ 300 g = $0.12 a gram.

The same happens on Front Label in the sample workspace. It starts with 1,000 labels at $0.08. A purchase of 500 for $40.00 ($0.08 each) leaves the average at $0.08. A second purchase of 500 for $60.00 ($0.12 each) moves it to (1,500 × $0.08 + 500 × $0.12) ÷ 2,000 = $0.09. The WAC after column of Purchase history shows the average after each one.

What moves it?

On any material but a tool, only stock that comes in with a cost, and stock you send back to your supplier:

• A purchase, recorded with Record purchase on the material's page.
• A purchase order line, when you receive it. It comes in at its landed amount: the line's subtotal plus its share of the order's shipping and tax, minus its share of the discount. Creating, editing, marking ordered, marking paid or canceling a purchase order moves nothing.
• Opening stock, when you add the material. It sets the first unit cost.
• A vendor credit. The returned quantity leaves, and the credit comes off the value of what's left.
• An inventory adjustment that adds stock with a cost basis. Adding stock without a cost basis adds it at the current unit cost, so the average stays the same.

Products work the same way: each completed batch adds its units at the batch's cost, and a customer return you restock adds its units back at the cost they sold at. Both blend into the product's average. Canceling a started batch blends each product it used back in at the cost the batch took it at. A return that leaves the product at zero or below on hand changes only its count.

If a material's count is below zero when stock comes in, the new stock also settles that gap, so the new average can land above or below the new stock's own cost. A purchase that would leave the count at zero or below is refused with a message that names the material, such as 'A purchase has to bring the count above zero, and this one would leave Soy Wax (GW464) at zero or below. Record more than the shortfall, or correct the count first.' A tool's purchase is never refused this way: it adds only to the count. Costing troubleshooting walks through it.

What doesn't move it?

• Using it in a batch. The batch takes the material out at its current unit cost.
• Selling. A sale takes the product out at its current unit cost. The exception is a product with no stock whose cost never came from real stock. Its sale is costed from its recipe, the recipe's Unit cost (incl. labor) that day, and sets the product's unit cost from it: exactly that figure when nothing was on hand, a blend that keeps the stock's value right when the count was already below zero. Each such sale does the same until a batch or an adjustment brings in real stock.
• Using a product inside another product's batch. The batch takes it out at its current unit cost while you have some. The exception is a product with none on hand, or a count below zero: the batch costs it from its recipe and sets that product's unit cost the way such a sale does.
• An adjustment that takes stock out: a stocktake count down, spoilage or a correction.
• Editing the material: its name, supplier, reorder threshold or conversion.

Where do you see it?

• Unit cost on the Materials list.
• Unit cost (WAC) on the material's page.
• WAC after in the material's Purchase history: the average right after each purchase.
• WAC after on Receive items, before you receive a purchase order. It shows each line's cost before and after, such as $0.07 → $0.08/each, exactly as the receipt will book it. A tool's line shows 'expense (overhead)' instead.

You can't type the unit cost anywhere. The edit form shows it read-only.

Tools are the exception

A tool is a material added with Track as inventory (uncheck for tools / equipment) unchecked. Its purchases are booked as overhead, a business expense, and a vendor credit on it comes off your overhead. Its opening stock and its adjustments change only its count. None of these changes its unit cost, so a tool stays at $0.00 and is left out of your inventory's value.

Why doesn't history change?

A moving average only ever moves forward. When a batch starts, it takes each material at the unit cost of that moment and keeps that cost. When you fulfill an order, its cost of goods sold is fixed at the product's unit cost of that moment, or at its recipe's cost for a product with no stock and no cost from real stock. A later purchase, cheaper or more expensive, changes what the next batch costs, never one already made.

The date on a purchase doesn't reorder anything either. A purchase dated last month blends into today's average like any other, except on a tool, where it adds only to the count. Its date only decides which period it appears in on your reports.

For the full costing method in question-and-answer form, see Costing FAQ: weighted average, not FIFO.