Weighted Average Cost

Concept

Weighted Average Method

The weighted average method calculates a single average cost per unit by dividing total cost of goods available for sale by total units available. This average cost is applied to both COGS and ending inventory.

Example

Weighted Average Calculation

100 units @ $10 = $1,000 + 200 units @ $12 = $2,400. Total: 300 units, $3,400. Weighted average cost = $3,400 / 300 = $11.33 per unit. Sell 150 units: COGS = 150 × $11.33 = $1,700. Ending inventory = 150 × $11.33 = $1,700.

Key Point

Middle Ground

Weighted average produces COGS and ending inventory values that fall between FIFO and LIFO. It smooths out price fluctuations.

LIFO (Last-In, First-Out)

Inventory Errors & Lower of Cost or Market

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