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Average cost method uses the weighted average of all inventory purchased in a period to assign value to the cost of goods sold (COGS) as well as the cost of goods still available for sale.
The average cost method calculates the cost of goods sold and ending inventory by dividing the total cost of purchases by units purchased.
Besides FIFO and LIFO, the Average Cost Method is another common way for accountants to value inventory. In this lesson, I explain the easiest way to calculate the ending stock value using the average cost method under both periodic and perpetual inventory systems.
What is the Average Cost Method? Average costing is the application of the average cost of a group of assets to each asset within that group. The concept is most commonly applied to inventory , but can also be used with fixed assets .
The average cost method is an inventory valuation method which uses the weighted average cost calculation to determining the COGS and the ending inventory.
The average cost method, also known as the weighted average cost method, is a common inventory valuation technique that simplifies determining the cost of goods sold and ending inventory. It calculates inventory cost by dividing the total cost of goods available for sale by the total number of units available, resulting in a uniform cost per unit.
The average cost method, also known as the weighted average cost method, is a system of inventory valuation which determines the cost of goods sold and ending inventory value by calculating a mean cost of all the goods available for sale during a certain period.