Weighted Average Cost of Inventory

Definition: Weighted Average Cost of Inventory is a valuation method that calculates the average cost of inventory items by dividing the total cost of goods available for sale by the total units available. This approach smooths out price fluctuations over a period, providing a consistent cost for inventory. When an item is sold or used, the weighted average cost is applied to determine the cost of goods sold (COGS). This method is particularly useful in industries with frequent price changes or indistinguishable items, as it simplifies inventory management and cost calculations.

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