Weighted Average Cost Method

Average Cost Approach

The weighted average method assigns the same average unit cost to both cost of goods sold and ending inventory. This method smooths price fluctuations and is commonly used when inventory items are similar.

Average Cost per Unit = Total Cost Available for Sale ÷ Total Units Available

• Simplifies inventory valuation.
• Reduces effects of price volatility.
• Produces results between FIFO and current replacement costs.
• Frequently used for homogeneous inventory.