Shopfront currently has three cost calculation methods, Last Cost, Average Cost and Mixed Mode. Each with their own benefits and drawbacks.
How to Change Profit Calculation Method
- Open the Menu
- Select Setup
- Select General
- Change the tab to Company
- Change the Cost Calculation Method to the method you wish to use
- Press Save Settings
Last cost overrides your cost with the last purchase cost that was received on your latest invoice for that product.
- Easy to understand
- Simple to work out how cost is calculated
- If your cost changes, old stock is now at the wrong profit (some stock might have cost more than other stock)
Average cost is the most accurate method of keeping track of profit, however if your stock falls into a negative amount the system has to compensate the amount of profit you should be receiving which may result in a negative cost or a cost several hundred dollars out (depending upon how inaccurate your inventory is).
- Highly accurate
- Complex to calculate
- Can create giant or negative costs
Average cost is calculated using the following:
- Get the current stock on hand (current_stock)
- Get the current cost (current_cost)
- Get the newly received stock (new_stock)
- Get the new cost (new_cost)
- Enter the numbers into the following formula:
- (current_stock * current_cost + new_stock * new_cost) / (current_stock + new_stock)
Note: There are several edge cases with this formula which are handled outside this formula.
Mixed mode is our new cost calculation method which uses Average Cost while your inventory is a positive amount and then goes back to using Last Cost when your inventory hits a negative amount.
- Profit is accurate while stock remains positive
- No huge or negative costs
- Profit is inaccurate when stock goes into negative