What Is Moving Average Cost? EDGEBIC Inventory Definition

Moving average cost is a single blended unit cost for a product, recomputed every time stock is received so that it always reflects the weighted mix of everything currently on hand. It is EDGEBIC by User Solutions' answer to a problem every stockroom has: once two deliveries at different prices are in the same bin, nobody can tell which physical unit cost what, so one honest blended figure serves better than a fiction about which unit was picked.

This entry is part of the EDGEBIC glossary series introduced on the platform overview; the broader vocabulary index sits in the manufacturing glossary. It sits on top of the inventory ledger, the append-only record of every stock movement.

How Moving Average Cost Works

Picture a grain silo. Monday's delivery went in at one price, Thursday's at another, and by Friday the two are physically indistinguishable. Nobody is going to trace kernels. What the silo carries instead is a blended price that shifted toward Thursday's rate in proportion to how much Thursday added.

That is the whole idea, and the formula is the arithmetic of it. On each receipt:

new average = (quantity on hand × current average + quantity received × receipt cost) ÷ (quantity on hand + quantity received)

Two properties follow directly, and both matter more than they first appear.

Only receipts recompute the average. An issue removes quantity at the prevailing average and leaves the average itself alone. Without that rule the unit cost of a product would drift every time a job consumed material, so a shop with no purchasing activity at all would still watch its costs wander. Stability between deliveries is what makes the number usable.

The average is a current figure, so history needs its own copy. Because it keeps moving, reading the live average when reporting on a movement from last March would revalue that movement every time you looked at it. EDGEBIC therefore captures the unit cost onto each ledger entry at the moment it is posted. The entry keeps the cost it was genuinely valued at, whatever the average does afterwards.

The recomputation is not a separate housekeeping step. A posting opens a transaction, reads the authoritative on-hand as the sum of the ledger, recomputes the average when the movement is a receipt, updates the cached on-hand quantity, appends the new ledger entry, and commits the whole set at once. Cost, quantity and ledger move together or not at all.

A Concrete Example

Start with 100 units on hand at a moving average of $10.00 each.

Receipt: 50 units at $13.00.

new average = (100 × 10.00 + 50 × 13.00) ÷ 150 = (1,000 + 650) ÷ 150 = $11.00

The new price was 30 percent higher, but the average moved by only a dollar, because two thirds of the stock still carries the old cost. On-hand is now 150 units, and the ledger entry for this receipt is stamped with the $13.00 it was actually received at.

Issue: 60 units to a job.

The average stays at $11.00. On-hand falls to 90. The issue entry is stamped at $11.00, the prevailing average, which is what the job consumed.

Receipt: 50 units at $8.00, after a price fall.

new average = (90 × 11.00 + 50 × 8.00) ÷ 140 = (990 + 400) ÷ 140 = $9.93

On-hand is 140 units at a blended $9.93. Look back at the March issue six months from now and it still reads $11.00, because the ledger kept its own copy. The product's current average and the historical entries answer two different questions and both stay correct.

How EDGEBIC Uses Moving Average Cost

The average lives on the product record and is maintained automatically; there is no separate revaluation run to remember. Every receipt path updates it, whether the stock arrived as a completed build to inventory, as an opening balance when the product was first set up, or as a manual adjustment.

Three things are worth knowing in daily use:

• A reversal is an inverse entry, not a deletion. Correcting a mistaken movement appends an opposite entry rather than removing the original, so both remain in the ledger and net to zero. The cost history stays legible rather than being quietly rewritten.
• The ledger is authoritative, the on-hand figure is a cache. The same is true of cost: the entries carry the record, and the product's average is the current summary maintained beside them.
• It is a material cost, not a burdened cost. The average values what a unit of stock cost to receive. Job costing in EDGEBIC is built from labor hours priced at work center rates plus material, with no overhead layer on top, so the moving average answers the material half of that question.

The mechanics of how each receipt shifts the number, with more worked figures, are in how moving average cost updates on each receipt. For the movement type that triggers the recomputation, see the inventory receipt transaction.