I'm not sure if this is an elementary question, but I was wondering how to best handle inventory costs in the following situation. We keep inventory as average cost valuation. Periodically, we get promotions activities from vendors where we're "selling below cost" but are claiming back from rebates or marketing dollars from vendors. The issue is that the profit margins for those sales can be seriously off track, sometimes into negative depending on the amount of rebate or discount offered by our vendors. We want to start tracking our salespeople on better profitability metrics, what is the best method for adjusting cost during promotion periods so that our profits and profit margins aren't thrown off? Should we be backing out inventory at the start of promo period and then adding it back in at a reduced cost, then reversing this activity at the end of the promo period? I imagine there has to be a better way to manage this and would appreciate help from the community.

Thanks!