Average Cost Calculator

Weighted average cost is found by dividing the total cost by the total quantity. Formula: Average Unit Cost = Total Cost / Total Quantity. For example, if 100 units were bought for $40,000 and 50 units for $30,000, the average cost is: $70,000 / 150 = $466.67.

The average cost method is used especially in inventory valuation and pricing decisions. It determines a fair unit cost for products purchased at different prices at different times, enabling accurate profit/loss calculations. It is used as an alternative to FIFO and LIFO methods.

There are three main inventory valuation methods: Weighted Average (total cost / total quantity), FIFO (first in first out - oldest costs are used first), and LIFO (last in first out - newest costs are used first).