We are running into the “price amplification” effect with Moving Average costing in Dynamics 365 F&O. This is a well-known limitation whenever:

Negative financial inventory is allowed,
On-hand quantity reaches zero (or below), and
The system tries to post an issue transaction without a proper moving average base → resulting in inflated or distorted costs.
Microsoft’s reply ("by design") basically means they aren’t considering it a bug, but a structural limitation of moving average valuation.

But the system must do one of two things when scenario presents:
- Stop you from proceeding
- Calculate amount correctly.