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Average Cost Calculation Per Location

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Posted on by Feras

Hello

i am using D365 BC and i was wondering if i can have my items to be calculated with Average method per location.

i made many research about that and i found an option in the inventory setup "Average Cost Calcu.Type" and i tried to use it as "Item & Location & Variant", but i couldn't find any results from that.

i am not sure if this is the option that i am looking for or not

if yes, then how it works? is there any missing extra setups that i have to do?

if no, then how i can have my items average calculated per location?

thank you all in advance

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Jubeljoy 31 on at

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Yes. inventory setup is the area where you have to specify "Average Cost Calcu.Type" = "Item & Location & Variant"

Also make sure following points

1) Update Item Costing Method = Average

2) Create New SKUs ( Stock Keeping Units) for getting view on Location Wise Unit Cost

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Feras 43 on at

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thanks for your help Jubeljoy

let me clarify one more important thing.

i am not looking for assigning each item for a specific location, my case as follows:

i made many purchase transactions for ITEM A with different cost each time and i assigned all these transaction to LOCATION A in the purchase order.

and then i made many purchase transaction for ITEM A again with different costs (different costs than the trx i made previously for the other location) and i assigned all these transaction to LOCATION B in the purchase order

at the end of the day, i need to see ITEM A average cost as per LOCATION A and as per LOCATION B, so when i make a sales invoice / order and i chose ITEM A and i chose LOCATION A i should see a specific cost showing in the line, and when i change the location to B the cost should be changed accordingly.

i hope this is clear.

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Community Member on at

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Hello,

What Jubeljoy stated is the proper setup approach to maintain an Average Cost, by Item, by Variant, and by Location. You then need to setup Stockkeeping Units (SKU), for each Location, so that the Inventory posted to each Inventory-Location transaction will be recorded individually so you can see the Average per Location.

My example above does not have a different cost but could if I purchased the transactions with different cost. The SKU Card maintains their own Unit Cost and Last Direct Cost:

Do you follow? Hope this helps.

Thanks,

Steve

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Hakan Esimek 8 on at

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Hello,

Average Cost. Calc. Type in INVENTORY SETUP is a critical setup parameter for item cost calculation and posting.

If you select Item&Location&Variant here, the system calculates the item cost based on location(and variant if you have any). On the item card you still see the overall average cost but when you post sales documents, BC adjust the cost posted to Inventory at hand and COGS accounts based on the cost at location used in sales order line.

This is quite ok but on the sales order when you check your profit from statistics page you will see your profit margin based on overall average cost which is misleading. I believe Microsoft should change this and show the profit margin based on the item cost at that specific location (location you put in your sales line).

If you need further details fell free to write me.

Thanks,

Hakan Esimek

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Sohail Ahmed 11,136 Super User 2025 Season 2 on at

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@Feras Yes, your scenario is fully supported in Business Central if the item uses the Average costing method and the "Average Cost Calc. Type" is set to "Item & Location & Variant" in Inventory Setup.

With this setup:

BC will track and calculate average cost separately per location.

When you create a Sales Order and select ITEM A with Location A, it will use the average cost for that location. If you switch to Location B, it will reflect the different average cost from Location B.

Make sure all purchases and sales are correctly posted with the right location.

✅ Mark this answer as verified if it helps you.

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Jeffrey Bulanadi 8,760 on at

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Hi Feras,

The "Average Cost Calc. Type" setting in Inventory Setup is indeed the key to enabling average cost calculation per location. When set to "Item & Location & Variant", BC calculates average cost separately for each combination of item, location, and variant. But there are a few critical steps to make it work as expected:

Setup Checklist for Location-Based Average Costing

Costing Method: Ensure the item’s Costing Method is set to Average on the Item Card.

Inventory Setup: Set Average Cost Calc. Type to "Item & Location & Variant" and define your Average Cost Period (e.g., Month or Day).

Stockkeeping Units (SKUs): Create SKU Cards for each item-location combination. This is essential — SKUs maintain separate cost layers per location and variant.

Posting Transactions: Make sure your purchase and sales transactions are posted with the correct location code. The system uses this to segregate cost buckets.

Adjust Cost - Item Entries: Run this batch job regularly to update cost entries and apply the correct average cost per location.

Valuation Date Awareness: The average cost is calculated based on the Valuation Date in the Avg. Cost Adjmt. Entry Point table, not just the posting date. This ensures proper period-based costing.

How It Works Behind the Scenes

When you post a transaction (e.g., purchase or sale), BC creates entries in the Avg. Cost Adjmt. Entry Point table for each item-location-variant combo. During cost adjustment, it:

Adds inbound costs (purchases, returns, positive adjustments)

Subtracts outbound costs (sales, negative adjustments)

Divides by the inventory quantity at the end of the period

Applies the calculated average cost to inventory decreases

This ensures that sales from Location A reflect the average cost of purchases made to Location A, and not Location B — even for the same item.

Helpful References
Design details – average cost in BC
Deep dive on average costing logic

If you find this helpful, feel free to mark this as the suggested or verified answer.

Cheers
Jeffrey

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YUN ZHU 95,329 Super User 2025 Season 2 on at

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Hi, hope the following helps.

https://learn.microsoft.com/en-us/dynamics365/business-central/design-details-costing-methods?wt.mc_id=DX-MVP-5004336

Thanks.

ZHU

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