How the Unit Cost is calculated in Shoptiques POS

A unit cost refers to the total expenditure incurred to produce, store, and sell one unit of a product. It's an important metric for cost management and is used to calculate the Cost of Goods Sold (COGS) when a product is sold at your boutique. This article is going to explain how unit costs are calculated in the Shoptiques POS system. 

Key takeaways:

1. Remember to put in the wholesale price when creating a product
2. When creating a purchase order or an inventory check order, remember to put in the updated unit cost of the products.
3. Remember to put in the updated wholesale price when you use the Import Product Tool

Rule of thumb:

The unit cost would only be updated when the quantity of a product is increased

Now we know that the unit cost will only be updated when the quantity of a product is increased. Let's consider each case when a product's quantity is increased.

1. Creating a new product through Import Product Tool

Shoptiques POS allows you to add products to the system in bulk with the Import Product Tool. In the product template file, each row represents 1 variant of a product and there are 2 columns called Stock Count and Wholesale Price. Given that you have entered a positive stock count and wholesale price for a product, the unit cost of that product will default to be the wholesale price.

For instance, if you use the Import Tool to import this product to the system, this product will have a unit cost of $10 as the wholesale price of $10.

2. Increasing the quantity of a product through Purchase Order or Inventory Check Order

The Purchase Order or Inventory Check Order allows you to put in the unit cost of the incoming product, and the new unit cost of the product will be used to readjust the unit cost of the product. Sounds confusing? Let me explain in detail.

We used the weighted average method to calculate the unit cost. Imagine this scenario: you bought 100 units of a product for $50 each, and the unit cost of that product is, therefore, $50. Later you bought another 10 units of the same product with $80 each. If we simply say the unit cost of this product is updated to $80, the actual cost you spent on this product will then be misrepresented. To tackle this issue, we have adopted the weighted average method to factor in the past unit costs. In this case, the unit cost will be readjusted with this formula:

(old unit cost x the old stock count + new unit cost x incoming quantity) / new stock count = new unit cost

($50 x 100 + $80 x 10) / 110 = $52.7

Based on the calculation I explained above, the new quantity and unit cost in a purchase order or an inventory check order will be used to re-calculated the unit cost of a product. In the example Purchase Order in the screenshot below, 10 units of the product "2020011601" with a $30 unit cost are included in the order. After this Purchase Order is received, the unit cost of "2020011601" will then be adjusted:

(old unit cost x old quantity + 10 x $30) / (old quantity + 10) = new unit cost

3. Increasing the quantity of a product through the Quick Inventory Adjustment

Shoptiques POS allows you to change the quantity of a product without having to go through the long process of creating and closing a purchase order or an inventory check order. Learn how to make a quick inventory adjustment here. When you increase the quantity of a product through the quick inventory adjustment, the new unit cost will default to be the wholesale price. 

For instance, a product has a wholesale price of $50, a quantity of 100 units, and a unit cost of $40. The boutique makes a quick inventory adjustment that increases the quantity of the product to 150, so the difference between the new quantity and the old quantity is 50. This is how the unit cost will be readjusted with the weighted average method:

(old unit cost x the old stock count + new unit cost x incoming quantity) / new stock count = new unit cost

($40 x 100 + $50 x 50) / 150 = $43.33

4. Increasing the quantity of a product through the Import Product Tool

Similar to how you create products with the Import Product Tool, you could use the tool to update a product with the same template file you used to create products. This article explains how you could update products with the Import Product Tool. In the template file, you could change the stock count and wholesale price of a product. If you increase the quantity of a product, the unit cost will then be readjusted using the wholesale price.

For instance, on the row of a product with a $50 wholesale price, 100 stock count, and a $40 unit cost (*unit cost is not showing on the template), the boutique changes its stock count to 150, so the difference between the new quantity and the old quantity is 50 (150 - 100). The following is how the unit cost will be readjusted with the weighted average method:

(old unit cost x the old stock count + new unit cost x incoming quantity) / new stock count = new unit cost

($40 x 100 + $50 x 50) / 150 = $43.33