Profit and Loss report

Good day.

I'd be glad to share insights on how gross profit is calculated when running the Profit & loss report. The gross profit is calculated by subtracting the cost of goods sold from revenue. Revenue equals the total sales, and the cost of goods sold includes all of the costs needed to make the product you’re selling. 

If you want to view the average cost of the items, you can run the Sales by Item Summary instead. Simply go to the Reports menu and select Sales. Click the Sales by Item Summary report.

For additional reference, you can check out this article: https://quickbooks.intuit.com/r/bookkeeping/gross-profit/

Please let me know if you have additional questions about the P&L report in QuickBooks. I'm always here to help. Have a good one.

RE: If it doesn't do it based on average cost of the items, is there a report that can do it? 

Reports that include COGS, including the P&L and other financial reports, use COGS as calculated by QuickBooks for inventory sales, or as entered directly/manually using the GOGS accounts in other cases.

As far as inventory COGS, most QB versions/SKUs only offer the Average Cost method. Enterprise also offers FIFO as a cost method.