The first thing this process does is calculate the average unit cost of each inventory item by dividing the money balance by the number of units balance. The money balance represents the total cost of all the units in inventory. For example, 3 units of inventory A has been purchased at a 1.00 each, and 4 units of the same product has been purchased at 2.00 each. The money balance (or the Value field on the Enter Inventory Products screen), is 11.00 and the number of units (or the Qty on Hand field on the Enter Inventory Products screen) is 21. The average unit cost is:
average unit cost = value / units
1.57 = 11.00 / 7
This amount is shown in the Unit Cost field on the Enter Inventory Products screen. Costs over .09 are rounded to the nearest penny.