About material costs
Learn about how material costs are calculated.
Material costs are calculated automatically using your complete inventory history.
Each purchase of your material will recalculate your unit costs to include the new material stock, thus providing real-time costs.
In this article we'll cover:
- Moving Weighted Average Cost Method
- Understanding Unit Costs
- How material costs change over time
- What changes your unit cost?
- How to set material costs manually
- How to track materials with small unit costs
- How to change a material's cost unit
- Handling materials with constantly changing prices
- Averaging cost across several materials
- Finding your highest-cost materials
Moving Weighted Average Cost Method
We calculate your unit cost using a Moving Weighted Average Cost Method. It's not entirely necessary to understand the finer details of how this is calculated other than the fact that this IRS-approved method involves factoring in the new stock using the new cost, along with your current stock at another to calculate a new unit cost that represents the new pool of all stock on hand.
This method means we can give you a very accurate real-time cost for your materials on any date.
Unit Costs
Your Unit Cost is the cost of purchasing a single unit of your material.
Your unit cost will also include discounts and shipping paid when purchasing the material - commonly called a "landed cost" or "fully landed cost." It ensures that your unit costs include all additional purchases you have incurred to bring the material to you, so your material valuations and COGS totals reflect this.
It does not include any tax applied to the purchase (i.e., all Actual Unit Costs are ex-tax). This is because tax should not usually be factored into your material valuation and COGS calculations - the tax paid to purchase your materials is normally claimed as an indirect purchase.
Your Actual Unit Cost is calculated by proportioning the amounts from your material purchase. This is done automatically when you save the new purchase.
Your Actual Unit Costs are used to calculate your pricing guidance, manufacture and order material costs, and inventory value / COGS.
How material costs change over time
The diagram below shows how material costs can change over time based on different purchases made of the same material.
The material starts with a starting unit cost of 0.72. However, purchases over time slowly increase and decrease the unit cost of the material (from 0.72 up to 0.81). These costs can be pin-pointed at any time between the purchases using the moving average cost method.
What changes your unit cost?
Not all stock movements cause Stocksmith to recalculate your unit cost. Here's a quick reference for what does and doesn't affect it:
| Stock movement | Affects unit cost? | How |
| Purchase (received) | Yes | Recalculates using the weighted average of the new purchase cost and your existing stock |
| Starting adjustment | Yes | Included in the weighted average as the opening cost |
| Positive manual adjustment or stocktake | Yes | The added stock is treated as zero cost, which dilutes your unit cost downward. The added stock is treated as zero cost, which dilutes your unit cost downward. If your stock is already at zero, your unit cost is reset to zero rather than diluted |
| Negative adjustment (manual removal, or manufacture consuming this material) | No (unless a refund/credit line is included on a recieved purchase) | Stock is removed at the current unit cost — the unit cost itself doesn't change |
| Manufacture (this material is produced as the output) | Yes | Recalculates using the manufacture's material cost per unit, weighted against remaining stock |
Why don't negative adjustments change the unit cost? When stock is removed — whether through a manual adjustment, a stocktake, or a manufacture using this material — Stocksmith records what you paid for it at the time, but the unit cost of your remaining stock stays the same. This is standard for the moving weighted average method: only adding stock at a new price changes the average.
The exception is when your stock reaches zero. At that point the running unit cost resets to zero, and any further removals are recorded at zero cost until you purchase more stock.
Setting material unit costs manually
It is not possible to set your material unit prices manually. Unit prices must be calculated automatically to ensure that your inventory values are consistent and accurate.
For more information on how unit prices are calculated, see our help article: How are unit costs for materials calculated?
Tracking materials with small unit costs
Materials can be tracked to 5 decimal places (i.e., 0.99999).
Whenever you add a new Purchase for a Material, you can enter the total price you paid for the group of items, and the individual unit price will be calculated for you. This is handy for purchases like buttons or beads, with hundreds or thousands of individual parts per package.
Changing a material's unit cost
Suppose you have set your material's average unit cost on the Add Material form. In that case, this information is saved as the material's Starting Adjustment, along with the quantity entered in the same section.
To change this unit cost, you'll want to edit your Starting Adjustment by following the instructions in this help article: How do I edit a Material Inventory Adjustment?
If you have entered an incorrect unit cost via a Material Purchase, you'll need to locate and edit the purchase (How do I edit a Purchase?). Once you have made the changes, your material's unit cost will be automatically updated for you.
What if my material's price changes constantly, like gold or gemstones?
Materials like gold, silver, and gemstones don't have a fixed price — the market rate moves daily. Stocksmith doesn't pull in live market prices or update a material's cost automatically to track them. Your unit cost is always based on what you actually paid, worked out from your purchase history.
There are two ways to keep your costs accurate as the price moves:
- Rely on your moving weighted average cost — every purchase you record for the material updates its moving weighted average unit cost. As long as you enter each purchase at the price you actually paid, your unit cost tracks the market with no extra setup. The trade-off is that your cost is always a blend of past purchases, not today's exact market rate.
- Track the volatile part separately — add a material to represent just the changing element of the cost (for example, "Gold value adjustment"), and add it to the recipe alongside your main material. Update this material's cost whenever the market price shifts, so the recipe cost reflects the current rate more closely than the weighted average alone.
Which approach should I use? The moving weighted average needs no extra setup and works well for most materials. Use the separate material approach if one volatile material makes up a large share of your product cost, and you want your costing to track the market more closely.
Can I average the cost across several materials?
No. Unit cost is calculated per material record, and the Materials list doesn't total or average the Unit Cost column across the rows shown, even when you filter the list down to a smaller set of materials.
The same is true of every report and export we generate. None of them roll up a single blended unit cost across multiple material records: the Material Valuation Summary totals stock value by category rather than averaging a unit cost, and the Material Inventory Worksheet doesn't include cost figures at all.
Have several material records for what's really one input? There isn't an automatic way to merge two materials into one, but you can consolidate them manually so future costs are tracked correctly going forward. See Merging materials for the steps. Moving the purchases across to the material you keep lets its unit cost recalculate to include all of the combined purchase history.
If your materials are genuinely different, for example different suppliers, formulations, or package sizes, keep them as separate records. Each one's unit cost then reflects exactly what you paid for that specific stock, which keeps your recipe and product costs accurate.
What's my most costly material, and which one is worth optimising?
Stocksmith doesn't have a single report that ranks your materials by total spend, but a few reports get you most of the way there:
- Material Valuation Summary — shows the value of the material stock you're currently holding, grouped by category, so you can see which category ties up the most value.
- Material Reorder Report — lists every material along with its current unit price, so you can scan the list for your priciest materials.
- Product profitability — each product's page shows its total material cost, so you can see which products carry the most material cost overall, even though it won't break that cost down by individual material within the recipe.
Looking for one specific volatile material, like gold or gemstones? See handling materials with constantly changing prices above — tracking that material's cost separately is often the fastest way to see its impact.
Need help?
If you're still not sure your material costs are accurate, our costing troubleshooting guide covers the most common causes of unexpected costs. You can also reach out to our support team any time — we're happy to help.