when you write

 return $price; 

the return value of this function used when crediting the goods. the purchase order standard cost will get an effect.
but within the update_average_material_cost, it updates the material cost on stock_master.

If the material cost is zero, while making the inventory valuvation report,and its inventory value calculation related functionalities all result you zero value there,

Instead of doing what is in the post, I added this line as the first line inside function update_average_material_cost

return $price;

I wanted to nullify the whole process inside the function.

Will there be any other effect by doing this?

You can also manually update the average cost price in the Inventory tab. This operation is done in /inventory/includes/db/items_trans_db.inc. There are also GL updates when doing this manually.

The cost prices are based on an average price. Not FIFO or LIFO.

/Joe