PakERP works on Average Costing System. That means for every transaction that affects inventory the System automatically calculates the Average Cost Prevailing in the system.

However sometimes if clients prefers to handle Inventory Cost himself instead of letting system automatically workout then we change it to Standard Costing System.

Disadvantages:

The Inventory Valuation in Trial Balance and Inventory Valuation Report will not be same over the period.

Explanation:

Step1: Item A opening balance was taken as 420 @ 52.5

Step2: 10 Items were sold so inventory was less @ 52.5 each (No Difference in both reports yet)

Step 3: 50 Items were purchased @ 60. Now this transaction will create difference because the Average Costing is disabled so the Average Cost will not be updated due to this transaction and hence Inventory Valuation Report will show all Inventory @ 52.5.