# Average Costing when returning stock RTS
#### Question
How does average costing work in accounting with stock? if we have 17 units on hand at $0.3151, then we receive more stock, additional 250 units at cost of $1.73. What is the average price at this point. Then we return the 250 units at cost of $1.73. Thereby leaving us with 17 units on hand. What is the average cost at this point and how did you get to this number
Here’s a clear, step‑by‑step explanation of **how average costing works** using your exact numbers.
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#### Returning stock back with same cost price
**✅ 1. Starting Position**
You have:
- **17 units**
- **Unit cost = $0.3151**
So your starting inventory value is:
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**✅ 2. Receive 250 units at $1.73 each**
This is where **weighted average costing** applies.
**Step 1 — Add the new stock**
- 250 units @ $1.73
- Value =
**Step 2 — Combine with existing stock**
**Total units after receipt:**
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**Total value after receipt:**
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**✅ New weighted average cost:**
****
Rounded appropriately:
**➡️ New average cost ≈ $1.6406 per unit**
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**✅ 3. Now you return the same 250 units at $1.73**
Important point:
**In weighted average costing, returns reverse the original receipt at the item's original receipt cost, NOT at the average cost.**
So the system removes:
- **250 units**
- **Cost per unit for the return = $1.73**
**Step 1 — Deduct the units**
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**Step 2 — Deduct the value removed**
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**Step 3 — Recalculate remaining inventory value**
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**✅ New weighted average cost after the return**
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**✅ Final Answer:**
You end up with:
- **17 units**
- **Average cost = $0.3151**
Which is *exactly the same* as the original cost.
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**✅ Why does the average cost return to the original value?**
Because:
- The 250‑unit receipt increased the average.
- The 250‑unit return reversed that exact receipt.
- Under weighted average costing, returns must undo the receipt **at the original receipt cost**, not the new average.
This leaves inventory **unchanged**, so your cost per unit returns to the original **$0.3151**.
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#### Returning stock at a different cost price
What happens when the average price returned is different to the original purchased price
Great question — this introduces an important nuance: **under average costing, the value of a return depends on the cost the system uses for returns.**
Different ERPs behave differently, but the two common methods are:
1. **Return at the original receipt cost** (e.g., $1.73)
2. **Return at a user‑entered cost** (your scenario: $1.50)
I'll show you exactly what happens mathematically when the return is at **$1.50**.
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**✅ Starting Point (after the purchase)**
From the earlier calculation:
- **Inventory before return:**
- Units: 267
- Total value: $437.8567
- Average cost: $1.64061
Now we return **250 units @ $1.50**.
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**✅ 1. Remove the returned units**
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**✅ 2. Remove the value of the return**
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**✅ 3. New inventory value**
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**✅ 4. New average cost**
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**✅ New average cost ≈ $3.6975 per unit**
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**✅ Interpretation**
Because the return value ($1.50 per unit) was **lower** than the receipt cost ($1.73), inventory value was reduced **less** than it originally increased.
The result is that the remaining 17 units are now valued much **higher** than before the purchase.
This is abnormal in typical average‑cost inventory systems (which normally force returns at the *original receipt cost* to keep the costing accurate), but some systems allow user‑entered return costs.
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**✅ Why does the average jump so much?**
Breakdown:
- The purchase increased inventory value by **$432.50**.
- The return only removed **$375.00**.
- So inventory value increased by:
Spread over only 17 units:
Added onto the original $0.3151 gives:
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**✅ Summary of outcomes**
Event | Units | Total Value | Average Cost |
|---|
Starting | 17 | 5.3567 | 0.3151 |
After purchase | 267 | 437.8567 | 1.6406 |
After return @ $1.50 | 17 | 62.8567 | **3.6975** |