# Average cost calculation – work order completion

You can calculate the average cost based up the work order completion.

Average Cost is calculated upon receipt of a work order completion using the following:

(On-hand Inventory value + Total value of finished item) divided by (New on hand quantity)

Where:

• Inventory Value has been recalculated
• Total value of the Finished Item is equal to:
• Sum of average cost of all components + Additional cost as calculated based on associated cost factor group.
• A cost factor group can be defined at enterprise level or parent item level for work orders. For a given business unit (enterprise), only one such group can be defined.

The following example shows the calculation of average cost during a work order completion. The Cost Factor Group referenced in this example is defined in Kitted finished product cost. In this example, the Cost Factor Group is associated with the Enterprise.

Current on-hand quantity before work order completion = 500.

Inventory value before completion = \$5000.

A work order for 1000 units of the finished good is received.

The finished good is made up of the following components:

• 12345 – Average cost = \$2.10
• 32456 – Average cost = \$6.20

When a work order for 1000 units for this finished good is completed, the total value of the finished item is calculated as:

Component cost   (1000 * \$2.10) + (1000*6.20) = \$8300
Labor Cost (20%) 0.2 * 8300 = \$1660
Supplies (\$3.00/unit) \$3000

Total increase in inventory value = \$12,960.00

The new Average cost is calculated as:

(\$5000 + \$12960) / (500 + 1000) = \$11.973333