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Level 1

Average cost of an Item

Dear All, We run a small wholesale business with many different items. We sell these items online, through resellers, etc. Often times, the POs, receiving and invoices are not done timely resulting in inventory errors and negative item stocks. This causes QB to get the COGS figure wildly incorrect. We have found that QB calculates the COGS based on average cost and that gets miscalculated due to negative inventories. I want to find out if there is a way to override or turn off average costs and use the manually entered item cost instead? Thank you
18 Comments
Highlighted
Moderator

Average cost of an Item

Greetings, yousuf791.

Allow me to help and provide you with some information about using the average cost in QuickBooks Desktop.

 

Right now, there isn't a way to turn off the average costs in QuickBooks Desktop. However, you can turn on and use the FIFO method in order not to calculate the inventory using the average cost method.

 

Here's how:

 

  1. Click Edit at the top menu bar.
  2. On the drop-down list, click Preferences.
  3. Click Items & Inventory.
  4. Go to Company Preferences and click the Advanced Inventory Settings.
  5. Go to FIFO tab and select Use FIFO Starting on then choose the date.
  6. Hit OK.
  7. Click OK again.

 

 

 

You may find these articles helpful:

 

Let me know how it goes. I'll be around to help you further with your inventories in QuickBooks Desktop.

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Level 15

Average cost of an Item


@yousuf791 wrote:
Dear All, We run a small wholesale business with many different items. We sell these items online, through resellers, etc. Often times, the POs, receiving and invoices are not done timely resulting in inventory errors and negative item stocks. This causes QB to get the COGS figure wildly incorrect. We have found that QB calculates the COGS based on average cost and that gets miscalculated due to negative inventories. I want to find out if there is a way to override or turn off average costs and use the manually entered item cost instead? Thank you

@RoseMarjorieA 

FIFO in desktop is only an option if the OP has enterprise - I see nothing that says that

 

and FIFO will not solve the issue of selling what you do not have

 

@yousuf791 

 

No, QBDT does average cost, FIFO if you have enterprise is just average cost per purchase date.

 

When you sell what you do not have in stock here is what happens in QB

at the time of the sale the current average cost is posted to COGS

 

when you enter a purchase for more of that item, QB compares the new average cost to the average cost used when you sold what you do not have, and if there is a difference QB makes an adjustment entry to both inventory asset and COGS.  In a COGS detail report this adjustment shows as a BILL in the source column.

 

If you are getting wildly high cost being posted, then the issue is most likely that the item does not have an established average cost, and is using the number in the cost block instead.  Established average cost comes from purchases of the item, using the item tab you select the item, qty, and total cost of that qty.

 

Enter a purchase for more of that item, and QB should sort the numbers out

 

see this for more on that cost block bug

http://onsale-apparel.com/Rustler/warning-inventory-bug

Highlighted
Level 1

Average cost of an Item

Our problem is wildly high costs amounts but not from the cost block amount but from the AVERAGE COST amount.   We don't really use the inventory function as most folks probably are, we basically just have the different types of light fixtures we sell (table, sconces, floor, hanging) so we can see what sells the most.  We are almost entirely vintage items so each fixture has a unique cost etc and it would be very time consuming to enter each item into inventory.  Now to the problem-: Somehow one of the types (items) acquired an AVERAGE COST of $1100.00.  So now everytime we use that item on an invoice QBKS automatically adds $1100 to our cost of goods acct associated with that item. Not only that, but it's made that entry into COGS  for EVERY SALE of that item dating back to day one.   So my questions are:  How do I get rid of the average cost?    Will it have the same "global" effect as it did when the average cost was created?   Is there a way to pinpoint when it happened and how/where?    Thanks for any and all help!!  

Highlighted
QuickBooks Team

Average cost of an Item

Average cost is the default settings in QuickBooks, Rewire Accounting.

 

For now, there's no option to turn it off or remove the default calculation, except if you have Enterprise.

 

As previously shared by one our Established Community Backers, QuickBooks might have calculated the amount when item does not have an established average cost, and is using the number in the cost block instead.  

 

QuickBooks also uses the weighted average cost to determine the value of the item and the amount debited to COGS when you sell it. The average cost is the total amount of cost of all of the inventory you have divided by the number of items. This article discusses this a little further: Understand Inventory Assets And COGS Tracking 

 

You might want to upgrade to the Enterprise version so you can use the FIFO settings. You can get it from this link: https://quickbooks.intuit.com/enterprise/.

 

Don't hesitate to visit us and post questions anytime you need help. The QuickBooks Team is always here to answer them for you.

 

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Level 1

Average cost of an Item

Thanks JenoP for your reply, however:

I wasn't asking how to "turn it off" (although that would be an awesome option) I just want to edit the avg cost  in order to put it back the way it was.  Oh, and we're using Quickbooks Accountant Desktop 2019.   

If Avg Cost is the default setting why would we have only ONE item with an average cost???? 

Highlighted
Level 1

Average cost of an Item

Thanks JenoP for your reply, however:

I wasn't asking how to "turn it off" (although that would be an awesome option) I just want to edit the avg cost  in order to put it back the way it was.  Oh, and we're using Quickbooks Accountant Desktop 2019.   

If Avg Cost is the default setting why would we have only ONE item with an average cost???? 

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QuickBooks Team

Average cost of an Item

Hi Rewire Accounting,

 

As discussed by our Established Community Backer @Rustler, when you sell an item but you don't have sufficient quantity, your item cost will become your default average cost. This cost is also posted in your COGS account.

 

You can edit your item's cost by creating a purchase order. Let me walk you through how.

  1. Click Vendors.
  2. Click Create Purchase Orders.
  3. In your Purchase Order window, enter your item information.
  4. Enter a QTY, and then the new Rate.
  5. Click Save. You'll be prompted to change the cost and click OK.
  6. Click Save & Close.

Once done, you can go back to your Item Lists screen to see the update cost.

  1. Click Lists.
  2. Click Item List.
  3. Right-clicked on the item and choose Edit Item.
  4. Click OK.

The screenshot shows how it looks like to change the item cost.

 

I've also added this article about understanding inventory assets and COGS tracking for details.

 

Reach out to us anytime if you have other questions. We're here to help.

 

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Level 1

Average cost of an Item



ShiellaGraceA, thank you so much for your reply.  However,  as with most of the solutions I've been provided throughout the years from QBKS Community,  what your saying does NOT ring true.  You stated:

As discussed by our Established Community Backer @Rustler, when you sell an item but you don't have sufficient quantity, your item cost will become your default average cost. This cost is also posted in your COGS account.

MY REALITY - NONE of our items have sufficient quantity.  ALL of them have a negative number in the "ON HAND" field.   These items are being sold every day yet ONLY ONE of them has an average cost.   The cost of this item is ZERO yet somehow it has an average cost of $1100.

You stated: The screenshot shows how it looks like to change the item cost.

MY REALITY - When I create a purchase order and the cost is different the pop up that appears is NOTHING like your screenshot.   My pop up is a single question that asks - You have changed the cost for "item name".  Do you want to update the item with the new cost?   

And YES that DOES change the cost for that item when I go back and check the item list.  

But if I want to change the cost of an item I don't need to create a purchase order to do that  I can just go into EDIT ITEM, type in whatever I want the cost to be and click OK.   That item now has a new cost. 

While I appreciate your attempt to help, what you're saying is not in sync with what's ACTUALLY happening for me.  It's almost like we're using two DIFFERENT programs.  

And if that weren't enough, I think you've misunderstood my question / problem.  I'm not asking how to change the cost of an item.  I want to know how to REMOVE THE AVERAGE COST of an item or change it so it becomes ZERO.

Just so you know -

After I created a purchase order for that item (changing it's cost from ZERO to $400).  I generated an invoice "selling" 4 of that item. (Now keep in mind the "ON HAND" quantity for this item is still a NEGATIVE number).  When I go back to my item list, right click on that item, and if I understand you correctly (when you sell an item but you don't have sufficient quantity, your item cost will become your default average cost.)  the average cost should now be $400.  (Because the PO changed the cost to $400 and I then sold that item without having sufficient qty). 

MY REALITY - That item cost is $400.   The average cost of that item DID NOT CHANGE!  It is STILL $1100

So you see, unless I'm TOTALLY missing something, this "solution" just doesn't ring true.   

Highlighted
QuickBooks Team

Average cost of an Item

Hi Rewire Accounting,

 

Let's resort your item list to repair data damaged. Let me guide you how.

  1. Click List on the upper menu.
  2. Select Item List.
  3. Click the Item drop-down arrow at the lower-left, then click Re-sort List.
  4. Click Ok.

Once done, you can check if the item cost is already showing the correct amount.

 

However, if it's still showing an incorrect amount, you can run the rebuild data tool to fix any data issues. Here's how:

  1. Click File on the upper-menu.
  2. Select Utilities.
  3. Choose Rebuild Data.
  4. Click OK. Follow the onscreen steps to save a backup.
  5. Let the tool repair your file. It may take some time. QuickBooks may seem stuck, but as long as you can move your mouse, the tool is working.
  6. When the tool finishes, click OK.

Please check this article for other troubleshooting steps: Resolve Data Damage With Your QuickBooks Desktop Company File.

 

I got this article in case you have other questions about QuickBooks Desktop: Inventory.

 

Keep me posted if you need anything else. I'm always right here to help.

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Level 1

Average cost of an Item

Thanks Maria for your suggestions. 

 

I resorted the item list - nothing changed.  

 

I ran the rebuild tool.  

There were 3 issues found.  

And I'm assuming the rebuild tool "fixed" those because the rebuild results says:

Errors we fixed   and gives me details.  

Error 190   &  Error 317   both of these related to the "To Do Note List" 

Error 179    Verify Master: totTrans wrong.   Is 56336 Should be 56343

 

I also ran the "Verify Data"  utility after the rebuild and there were no issues. 

So because the results screen reads:  Errors we fixed and the verify tool came back with no issues I'm taking that to mean everything is ok.   And yet the cost and the AVERAGE COST of the item in question remains unchanged. 

Highlighted
QuickBooks Team

Average cost of an Item

Hi Rewire Accounting,

 

I appreciate your time and effort in performing the steps above. Let me route you to the best help available to get this addressed as soon as possible.

 

Since the average cost remains unchanged,  I suggest contacting our phone support team. This way, they can check your account and investigate this further. Also, they have the necessary tools, like screen share to help you fix your issue.

 

Here's how to reach them:

  1. Open QuickBooks.
  2. Go to Help, then select QuickBooks Desktop Help.
  3. Select Contact Us.
  4. Give a brief description of your issue, then select Continue.
  5. We’ll provide you a few support options. Select which one is best for you.

I also have these Help Articles in case you have other questions about QuickBooks Desktop. 

 

Ping me over if you have other questions. I'm always here to help.

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Level 1

Average cost of an Item

Yeh, thanks Maria.

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Level 2

Average cost of an Item

I am having the same issue with average cost being way off 
I have a post here about that
Hopefully I can get the average cost fixed
Everything mentioned above here did not fix the average cost of a test item 
https://quickbooks.intuit.com/learn-support/en-us/other-questions/re-qb-desktop-cost-of-goods-is-wro...

Highlighted
Moderator

Average cost of an Item

Hello there, EL34,

 

I also recommend contacting our Desktop Support. They will be able to check your account and help you fix the average cost.

 

Just follow the steps provided by my colleague above.

 

Don't hesitate to post in the Community if you have other questions.

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Level 2

Average cost of an Item

I just spent an hour on the phone with quickbooks and she never even mentioned that it could be average cost that was messing up my cogs figures on all the reports.

It was like she was reading from a sheet of standard responses.
So I have zero confidence in those people.
I just happened to notice the average cost figure in one of my items after I got off the phone.

Why can't the fix be listed here?

 

Highlighted
QuickBooks Team

Average cost of an Item

Hello there, EL34.

 

I understand that you already reached out to them. Our Customer Support Team will be able to verify the cause behind this error. That way, they'll be able to provide a best resolution to fix the average cost.

 

You can always get back to me if you have other concerns.

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Level 1

Average cost of an Item

I'm having the EXACT same issue and it is causing my COGS to be HUGELY OVERSTATED and INACCURATE. I changed the cost on this particular part, and even brought the COST to $0, and it didn't change the AVERAGE COST, which is what is driving COGS. We don't keep inventory either, and this particular part is reflecting a large negative amount - which is used to calculate the AVERAGE COST. It's not good that QB Pro users do not have a way to fix this, as our P&L is incorrect and that is what we provide to our tax accountant to go by. C'mon QuickBooks, this is a legitimate problem that needs to be fixed ASAP for those of us who do not keep inventory on parts, yet we record them for invoicing purposes. NOT GOOD. Now, I am forced to manually adjust and correct the report by crossing out and recalculating, which is sloppy and time INEFFICIENT. Very disappointed.

Highlighted
Level 1

Average cost of an Item

Update your average cost with the following steps.

 

Under the Inventory tab

Select Adjust quantity/value on hand

Change adjustment type to Quantity and Total Value in the drop down menu

Select your adjustment account

If using multiple sites, select the site where the inventory is located that you want to update the average cost on

If the first column, type in the item you want to update the average cost on

Move over to the "Global Value" column and key in 0

Click save and close. 

 

Your average cost should now be reduced to 0

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