In Sage 200, the average buying price is the calculated average price paid for the goods that you currently hold in stock.
If you have chosen to use the ‘Average’ costing method for your stock items, the average buying price is used to calculate:
The average buying price is updated each time goods are confirmed as received in Sage 200 with a known cost price. By default in Sage 200, this is when the purchase invoice is recorded.
The average buying price is calculated from the price paid for the goods in stock, divided by the number of goods in stock.
For example:
The average buying price is the average cost of the second and third items as these are still in stock: (one item x £15) + (one item x £20) / 2 = £17.50.
When the stock level of an item is zero, the cost price of the next items purchased is used as the average buying price.
You can choose to update cost prices when the goods are recorded as received in Sage 200 rather than when the purchase invoice is entered (Purchase Order Processing settings / Order Processing tab). This will ensure that your average buying price reflects the purchase cost of all items received.
Any differences in the price on the purchase order and the price on the purchase invoice are posted to the nominal account specified in the Purchase Order Processing settings.
The following example shows how the stock valuation and stock nominal ledger values are calculated for stock item that use the average costing method.
You buy one item at £10 and record the invoice.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 1 | £10 | £10 |
| Nominal Ledger | 1 | £10 | £10 |
Buy another item at £20 and record the invoice.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 2 | £15 | £30 |
| Nominal Ledger Stock Account | 2 | £15 | £30 |
You sell one of the items.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 1 | £15 | £15 |
| Nominal Ledger Stock Account | 1 | £15 | £15 |
| Nominal Ledger Issues Account | 1 | £15 | £15 |
You sell the other item.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 0 | £15 | 0 |
| Nominal Ledger Stock Account | 0 | £15 | 0 |
| Nominal Ledger Issues Account | 2 | £15 | £30 |
If you choose to update cost prices when the invoice is recorded, the cost price for items that use the average costing method will be based on the invoices that you have already received.
If you receive and sell goods before entering the purchase invoice, the cost price for items sold will be based on the invoices already recorded.
The stock valuation report and the nominal ledger may show discrepancies when the cost prices is not updated until the invoice is entered. This is because stock can be issued before a confirmed price is entered.
The following example uses exaggerated values to illustrate this point.
You buy one item at £10 and record the invoice.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 1 | £10 | £10 |
| Nominal Ledger | 1 | £10 | £10 |
Buy another item and issue both items before the invoice is recorded. You have 1 confirmed and 1 unconfirmed item.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | -1 | £10 | -£10 |
| Nominal Ledger Stock Account | -1 | £10 | -£10 |
| Nominal Ledger Issues Account | 2 | £10 | £20 |
Record the invoice for the second item at £20. This item is now confirmed.
The nominal ledger values are not adjusted for items that have already been issued.
| No of Items | Average Buying Price | Total | |
|---|---|---|---|
| Stock Valuation | 0 | £15 | 0 |
| Nominal Ledger Stock Account | 1 | £10 | £10 |
| Nominal Ledger Issues Account | 2 | £10 | £20 |
To retrospectively calculate the average buying price would be complex and generate a large number of adjusting transactions that would not be practical in real world situations.
To monitor these discrepancies, we recommend that you create different nominal accounts for stock items that use the average costing method. Ideally, each product group should be linked to its own nominal account. In this way, you would be able to compare the stock valuation for the items in the product group with its associated nominal account and make the required adjustments.
Here are some examples of how the average buying price is used in Sage 200:
Sales order profit.
The estimated cost shown for sales order profit calculations is the average buying price for stock items using the ‘FIFO’, ‘Actual’ or ‘Average’ costing methods.
You can change this if you have the correct user permissions
Stock valuation.
Stock items that use the ‘Average’ costing method are valued using the average buying price for that item.
Cost of sales.
Cost of sales transactions are calculated using the average buying price, for stock items that use the ‘Average’ costing method.
Works Orders (Sage 200 Manufacturing).
When you issue a stock item that uses the ‘Average’ costing method to a works order, the average buying price is used to update the works order costs.
Estimating (Sage 200 Manufacturing).
When entering estimates, the average buying price is used as the cost price of goods for stock items that use the ‘FIFO’, ‘Average’ and ‘Actual’ costing methods.
Bill of Materials.
The estimated cost of a BOM is calculated using the average buying price for stock items that use the ‘FIFO’, ‘Average’, and ‘Actual’ costing methods.