How Is Last Cost for Inventoried Item Calculated

Inventory cost comes from a number of sources.  For inventoried products, the last cost of the product is determined when the product is received on a purchase order receipt, from a transfer, and from an adjustments.  

The last cost calculation determination is different based on the inventory costing method you have selected.

Average Inventory Costing Method

The system determine the last cost of of a product by first looking at the COGS posted to as part of a sales order shipments. 

If the item has never been shipped, it looks at the per unit accepted value of the inventory at the time of PO shipment receipt.

If there is no shipment or receipts, it uses the purchase prices.

FIFO (First in first out inventory costing mode)

The system looks at the last shipment receipt of the product and the per unit value received for the shipment receipt.

If the inventory was never received, but it is from a transfer or from an inventory adjustment, it uses the per unit value of the transfer or adjustment.