How do different cost prices work?

Merchanter tracks:

• Last Cost Price (Price of last purchase for product anywhere in the business)
• Standard Cost Price (A price set by the user they wish to use as their notional cost price)
• Average Cost Price (The average cost across the entire company, i.e. the total value of the stock - that you paid for - divided by the amount in stock)
• Depot Average Cost Price (The price local to a depot averaged over what you paid for it. This is the true cost price)
• Lot Cost Price (The price a Lot was purchased/created at)

A simple 2 depot cost example

For a simple example imagine a company with two depots A and B. 

A buys 100 units for £100. A month later B buys 100 units for £200.

The cost prices are:
LCP: £2/unit (Last purchase at B)
ACP: £1.5/unit (£300 spent div 200 units)
DACP at A: £1/unit
DACP at B: £2/unit

The manager sets the Standard Cost Price at £2.50, because they want to make sure they're making a good (actual) margin on whatever they sell.

Users can have their system show any cost price for sales lines on the order. So if they sell 50 units for £3/unit their margins would be:

LCP: 33.3% (3-2/3)
ACP: 50% (3-1.5/3)
DACP(A): 66.66% (3-1/3)
DACP(B): 33.3% (3-2/3)
SCP: 16.66% (3-2.5/3)

This shows why managers are sometimes keen to use SCP. The margin varies wildly. A salesman at depot A may look at their 66.6% margin and consider cutting a good deal for a customer, however if they cut below £2/unit they would effectively be selling at a loss against the replacement cost (LCP £2/unit).

Regardless of what they show on the line (And there are arguments as to which is best by company / product etc.) the stock value movement uses the DACP. That is because it is the true cost.

Depot B has £200 worth of product, with a DACP of £2/unit. When they sell 50 of them, the value of the stock falls by £100. The 50 units they still have in stock cost them £100. All the sums add up.

If movements used any other cost price (i.e. taking the cost from the line) then the sum of the movements wouldn't add up and a company could be generating or losing stock value, which isn't great for accountants.

Example: Depot A sells 50 units

So assuming Depot A sells its 50 units, where does that leave our cost prices:

LCP: £2 (Nothing purchased)
ACP: £ 1.33 (£200 / 150)
DACP(A): £1 (No inward movement)
DACP(B): £2 (No inward movement)
SCP: £2.50 (Manager hasn't changed anything)

This shows that the ACP for the product changes everywhere when the stock value is changed somewhere! This means it is not a dependable average that can be used on movements and should be used with great care if used for pricing.

Example: Depot A buys an additional 100 units

Purchasing goods has a much greater impact on cost prices. Depot A has 100 units at £100 total value. If they buy in another 100 units at £3/unit they end up with 200 units, with a total outlay of £400. This moves the cost prices:

LCP £3 - last purchase
ACP £2: (£500 / 250) 
DACP(A): £2: (£400 / 200)
DACP(B): £2: (100 / 50)

Example: Depot A sell all its stock and buys an additional 100 units

Now imagine depot A had first sold all its stock, and then bought in 100 units at £3.

LCP: £3
ACP: £2.67 (400/150)
DACP(A): £3 (£300/100)
DACP(B): £2 (100/50)