Initially, the average cost of an item is the same cost that the user has entered in the edit item dialog.

When the user creates a "Receive from Supplier" transaction, the average cost of an item is computed based on the value and quantity of the item received. It is a moving average computed based on historical transactions. The "Return to Supplier" transaction has the opposite effect.

For example:

  1. Initially, user created an item named "T-shirt" and entered $18 in the edit item dialog -> Average cost is $18

  2. User received 10 "T-Shirt" with cost of $20 -> Average cost is now $20

  3. User received another 10 "T-shirt" with cost of $22 -> Average cost is now $21

  4. User returned 10 "T-shirt" with cost of $22 -> Average cost will be reverted back to $20

Only "Receive from Suppler" and "Return to Supplier" affect on average cost. Any other transaction including "Adjustments" has no impact on the computation of average cost.

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