You are not alone in understanding Average cost. I think it should be named, “Average Inventory Cost” because just Average Cost lets people adopt a personal meaning that doesn’t match what happens. I don’t think anything in Epicor is more misunderstood than inventory costing.
Each time something is received to inventory, Make OR Buy, Epicor extends out the value of the current on hand inventory and the current Average price, adds the value to this, adds the qty of the receipt to the on hand balance then divides the sum of the value by the sum of the quantities to calculate a new value. This confirms what you asked, if the quantity of the on hand is zero (or less!), the new value is going to be the last receipt.
These are the rules. 
I think it is used for accounting purposes which is not misleading and not for any other kind of analysis, like quotation which it would be misleading. What you describe is more of a current “running average” but one would have to create a report to do that.