Average Cost Inventory Transaction Cost Inv Item Transaction Org Org Lot Quantity A PO Receipt1 OrgA OrgA 1 7 A PO Receipt2 OrgA OrgA 1 8 A PO Receipt3 OrgA OrgA 2 9 A SO Shipment1 OrgA OrgA 2 8 Receipt Cost (based on PO) Item Transaction Unit Cost A PO Receipt1 $10 A PO Receipt2 $11 A PO Receipt3 $12 Average Cost What is the item’s Valuation Structure? Cost Org + Inventory Org Org A + Org A + A $10.00 $10.53 $11.08 (7@$10 + 8@$11) / 15 (15@$10 .53 + 9@$12) / 24 Inventory Valuation Units Shipments Inventory Account Org A + Org A SO Shipment1 -8 7 @ $10 PO Receipt3 +9 8 @ $11 9 @ $12 PO Receipt2 +8 -1 7 @ $11.08 PO Receipt1 +7 -7 1 @ $11.08 COGS 7 @ $11.08 1 @ $11.08

Average Cost (at lot level) Inventory Transaction Cost Inv Item Transaction Org Org Lot Quantity A PO Receipt1 OrgA OrgA 1 7 A PO Receipt2 OrgA OrgA 1 8 A PO Receipt3 OrgA OrgA 2 9 A SO Shipment1 OrgA OrgA 1 8 Receipt Cost (based on PO) Item Transaction Unit Cost A PO Receipt1 $10 A PO Receipt2 $11 A PO Receipt3 $12 Average Cost What is the item’s Valuation Structure? Cost Org + Inventory Org + Lot Org A+Org A+Lot1+A $10.00 $10.53 (7@$10 + 8@$11) / 15 Org A+Org A+Lot2+A $12.00 Inventory Account Inventory Valuation Units Shipments 7 @ $10 Notes: An example of tracking average cost at the lot level. Notice that because the valuation structure is at the lot level, each lot will have it’s own valuation unit and average cost. Org A+Org A+Lot1 Org A+Org A+Lot2 SO Shipment1 -8 8 @ $11 PO Receipt3 +9 9 @ $12 7 @ $10.53 PO Receipt2 +8 -1 1 @ $10.53 PO Receipt1 +7 -7 COGS 7 @ $10.53 1 @ $10.53

Average Cost (at lot level, ship from Lot 2) Inventory Transaction Cost Inv Item Transaction Org Org Lot Quantity A PO Receipt1 OrgA OrgA 1 7 A PO Receipt2 OrgA OrgA 1 8 A PO Receipt3 OrgA OrgA 2 9 A SO Shipment1 OrgA OrgA 2 8 Receipt Cost (based on PO) Item Transaction Unit Cost A PO Receipt1 $10 A PO Receipt2 $11 A PO Receipt3 $12 Average Cost What is the item’s Valuation Structure? Cost Org + Inventory Org + Lot Org A+Org A+Lot1+A $10.00 $10.53 (7@$10 + 8@$11) / 15 Org A+Org A+Lot2+A $12.00 Inventory Account Inventory Valuation Units Shipments 7 @ $10 Notes: An example of tracking average cost at the lot level with the twist that the shipment is from Lot 2 (the previous example was a shipment from Lot 1). Notice that the depletion will come from the valuation unit corresponding with the Lot that was shipped. Org A+Org A+Lot1 Org A+Org A+Lot2 SO Shipment1 -8 8 @ $11 9 @ $12 PO Receipt3 +9 -8 8 @ $12.00 PO Receipt2 +8 PO Receipt1 +7 COGS 8 @ $12.00