2016-12-30 00:00:00 Finance and Accounting English Learn what the weighted average method, also called weighted average costing, is and learn when it is appropriate to use in a small... https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214454/employee-figures-average-cost-of-new-shirts.jpg Using the Weighted Average Method

Using the Weighted Average Method

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The weighted average method is used to allocate a product’s average cost of production. This method is commonly used in three situations:

  • The inventory is mixed and in disarray, so it is not possible to assign a specific cost to each unit.
  • The accounting system is not capable of tracking LIFO or FIFO data.
  • The inventory is too commoditized.

The calculation is simple. Take the total cost of goods available for sale and divide by the number of units available. When using this calculation, the cost of goods available for sale is equal to the beginning inventory plus net purchases.

For example, assume there was a beginning inventory of 150 units that cost $50,000. Next, assume 30 units were purchased for $7,500.

Total units = 180Total cost = $57,500Average cost = $319.44

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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