Moving average cost calculator

Moving average cost is an effective way of computing average costs associated with your inventory. Use our handy calculator to take out the guesswork and simplify your inventory management.

What is the moving average cost?

A company that sells goods keeps a healthy inventory to serve the needs of its customers. There are various accounting principles and computations that are used by a company, some of which are applied to keep track of goods sold and goods in stock. One of these principles is computing average cost, wherein one of the methods is called moving average cost.

“A moving average (unit) cost is an inventory costing method wherein after each goods acquisition, the average unit cost of the item is recomputed. This is done by adding the cost of the newly-acquired goods or units to the cost of the units already in the inventory. This is then divided by the new total number of items. It is a way to calculate the ending inventory cost. It is a perpetual process as there will be purchases and sale of goods throughout the year.”

Source: Business Dictionary

The importance of moving average cost

It is important for a company to sell its products and reduce the stock it has on hand. It’s easy to make an inventory of items that can be counted individually, but how will a company do its accounting when the goods it sells are in bulk, such as liquids, nuts, nails and bolts, grains, crude oil, wires and cables? Most of these items are carried in large quantities.

To illustrate the value of moving average cost, let us say a company is selling gasoline. There’s 50 gallons of gasoline still left in it and fresh delivery adds 200 gallons. It will be impossible to separate the old and new stock. Likewise, the new delivery will have a different price from the old one. This is where the moving average cost is applied: to properly account the product and compute your new selling price.

The moving average gets updated as soon as new delivery is received. 

The moving average helps you keep track of your financial position. It is used when recording inventory and computing your assets, in computing your net sales and the cost of goods sold to come up with your gross profit computation.

Computation of moving averages might sound complicated, but it is the best way to give you the most current price to use in your business.

How can QuickBooks help?

QuickBooks can help keep track of sales and invoices, so you know what you’ve sold and what’s still in your inventory. Find out more about our accounting software or visit our pricing page.

This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining professional advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by region, state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.

We may occasionally provide third-party links as a convenience and for informational purposes only. Intuit does not endorse or approve the views or opinions of any corporation or organisation or individual herein. Intuit accepts no responsibility for the accuracy, or legality, of third-party content.