In short
The weighted average cost method values inventory and cost of goods sold at the average cost of all units available for sale. A periodic system uses one average for the period; a perpetual system recalculates a moving average after each purchase.
Key takeaways
- When prices are rising, its results fall between first-in, first-out (FIFO) and last-in, first-out (LIFO).
- Periodic average cost = cost of goods available for sale ÷ units available.
- It is measured at the lower of cost and net realizable value.
Example
700 units available at a total cost of $8,800 gives an average of about $12.57; 250 units left in inventory are valued at $3,143.
Where it's tested
FAR: Inventory — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Using the same facts — beginning inventory 100 units at $10, purchases of 200 at $13 and 100 at $16, with 250 units sold — what is ending inventory under the weighted-average method (periodic)?