“Last cost” is typically the least recommended costing method. the logic of last cost does some behaviour that is not always intended, for example:
- 1000 parts received at $1 = GL now has $1000 in stock
- 1 additional part received but it was a sample, so it had a $0 value. Now your inventory value for the 1000 parts is zero. This caused a negative $1000 std cost variance to post
- again… another 1 part is received but this time, it was a $3 charge… now you have 1002 parts all set to $3, totaling $3006.
Each time you receive something at a last cost that is different from the previous last cost, all the inventory that is in stock gets adjusted in value. Most companies dont like this.
If you use AVERAGE, it does a WEIGHTED average of the receipts. There is no adjustment. These three transactions above would result in a final value of $1003 total, or $1.003 each per part. (assuming not using Lot Average)… if you are in Lot Average, then as long as you use a new lot number, the new cost would be specifically for that lot.