The average cost accounting method is one way to calculate cost basis. Once you choose any accounting method you must continue to use the same method for the life of the associated investment.
Fund Manager uses the Average Cost Single Category Method to calculate your cost.
When selling shares using the average method the cost basis is determined by multiplying the number of shares sold times the average price paid for all shares prior to the date of the sell transaction. (All purchases are included in this average, even if there have been previous sell transactions) Fund Manager includes any commission fees or loads associated with the purchases in your average price paid per share. The cost basis is also adjusted for any account fees or return of capital distributions. Account fees increase your cost basis, while return of capital distributions reduce your cost basis. Fund Manager subtracts off any commission fees or loads associated with the sell to obtain the sell value. The capital gains incurred equals the sell value minus the cost basis.
Example:
Buy 100 shares @ $50/share for $5,000
Buy 100 shares @ $55/share for $5,500
Reinvest 1 share @ $56/share for $56
Sell 50 shares @ $60/share for $3,000
The total you've spent for all shares prior to the sell is $10,556 ($5,000 + $5,500 + $56). The number of shares purchased was 201, so the average cost per share is $10,556 / 201, which is $52.52/share. This $52.52 is the number used as your cost basis for the shares sold. The capital gain on this sell is ($60 - $52.52) * 50 shares, which is equal to $374. This $52.52 cost per share does not change until you buy more shares.