It looks like the activity grading method = average is ignored if attempts grading setting is set to highest attempt.

Replication:

1. Create a course and enrol students.
2. Turn edit mode to "On".
3. Add a SCORM activity and use the attached file as the package.
   • Grade | Grading Method = Average grade
   • Attempts Management | Attempts grading = Highest Attempt
4. Save and display.
5. Log in as the student user.
6. Go to the course and SCORM activity. Use and choose answers below
   • nah, i prefer Moodle Quizzes
   • incorrect
   • abc
   • Click Submit Answers
7. Pop up appears saying "Your score is 33%".
8. Click the ">" button to go to the next questions.
9. Use and choose answers below
   • True
   • one
10. Click the ">" button (to display next question)
    • YES ACKNOWLEDGED
    • YES
    • Click Submit Answers
11. Pop up appears saying "Your score is 100%".
12. Click Exit activity.
13. Go back to the SCORM activity and you will see below.
    • Number of attempts allowed: Unlimited
      Number of attempts you have made: 1
      Grade for attempt 1: 67%
      Grading method: Highest attempt
      Grade reported: 67%
14. Go to the SCORM again, tick "Start a new attempt" and click Enter. Use the following answers
    • yes SCORM quizzes are the best!!!!
    • correct
    • abc
    • Click Submit answers
15. Pop up appears saying "Your score is 100%".
16. Click the ">" button to display next questions.
17. Use the following answers
    • True
    • one
18. Click the ">" button to display next questions. Use the following answers
    • YES ACKNOWLEDGED
    • YES
    • Click Submit Answers
19. Pop up appears saying "Your score is 100%".
20. Click Exit activity.
21. Click the SCORM activity and the following is displayed
    • Number of attempts allowed: Unlimited
      Number of attempts you have made: 2
      Grade for attempt 1: 67%
      Grade for attempt 2: 100%
      Grading method: Highest attempt
      Grade reported: 100%

Per above, the Grade reported is 100% as it is the Highest attempt. However, the SCORM activity setting is Grade | Grading Method = Average grade which would be a different grade and not 100.

So in this instance, it appears that the above setting is ignored.