Weighted-average cost method

The weighted-average cost method (AVCO) values all units sold and remaining stock at the average cost of goods available for sale, recalculated as new purchases arrive. It smooths the distortion of fluctuating purchase prices.

ByHoang TruongUpdated June 30, 2026

FrameworkInventory costing

See it move

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A firm opens with 100 units at €10 and buys 200 more at €13, for €3,600 across 300 units — a weighted average of €12 per unit. Applying that one rate uniformly, the 180 units sold cost €2,160 and the 120 units left in stock are valued at €1,440. Both figures use the same blended cost, smoothing out the price difference between the two purchase batches.

Where it fits

SubjectFinancial AccountingCoreTopicInventory & COGSCore

The formula

LaTeX

\bar{c} = \frac{\text{Total cost available}}{\text{Total units available}}

Variables

$A V C O U ni tC os t$: Weighted-average cost per unit (€/unit)
$T o t a l C os t o f G oo d s A v ai l ab l e$: Opening inventory cost plus cost of all purchases in the period (€)
$T o t a l U ni t s A v ai l ab l e$: Opening inventory units plus all units purchased in the period (units)

Blended average applied uniformly to cost of goods sold and closing inventory