Weighted Average Inventory Calculator

Calculate inventory value using Weighted Average method that averages costs across all units

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What is Weighted Average (Weighted Average Cost Method)?

Calculate inventory value using Weighted Average method that averages costs across all units

Advantages of Weighted Average

Smooths out price fluctuations over time

Simpler to calculate and understand

Moderate profit reporting between FIFO and LIFO

Widely accepted under both GAAP and IFRS

Good for commodities and similar products

When to Use Weighted Average

Commodities and similar products

When units are indistinguishable

Volatile pricing environments

International businesses

Process manufacturing industries

Considerations for Weighted Average

May not reflect actual cost of specific units

Requires recalculation after each purchase

Less precise than specific identification

May not optimize tax implications

Weighted Average Formula

Weighted Average Cost = (Total Cost of Goods Available) ÷ (Total Units Available)

Under Weighted Average, all units are valued at the same average cost, calculated by dividing total cost by total units available for sale.

Weighted Average Calculation Example

Scenario:

Using the same ABC Company example to show average cost method:

Purchases:

Date	Quantity	Unit Cost	Total Cost
Jan 5	100	$10	$1000
Jan 15	200	$12	$2400
Jan 25	150	$14	$2100

320 units sold during January

Calculation Steps:

Step 1: Calculate total goods available for sale:

- Total units = 100 + 200 + 150 = 450 units

- Total cost = $1,000 + $2,400 + $2,100 = $5,500

Step 2: Calculate weighted average cost per unit:

- Average cost = $5,500 ÷ 450 units = $12.22 per unit

Step 3: Calculate ending inventory value:

- Units remaining = 450 - 320 = 130 units

- Ending inventory = 130 units × $12.22 = $1,589

Step 4: Calculate Cost of Goods Sold:

- COGS = 320 units × $12.22 = $3,910

Final Results

$1589

Ending Inventory

$3910

Cost of Goods Sold

130

Units Remaining

$12.22

Avg Cost/Unit

Compare Inventory Valuation Methods

Understanding how Weighted Average compares to other methods can help you make informed decisions.

FIFO

First-In, First-Out

Top Advantages:

Most common and widely accepted method
Better for inflationary periods
Higher reported profits during inflation

Best For:

Perishable goods and products with expiration dates
Inflationary business environments

Learn About FIFO →

LIFO

Premium

Last-In, First-Out

Top Advantages:

Matches current costs with current revenue
Lower reported profits during inflation (tax benefit)
Reduces tax liability in rising cost environments

Best For:

US-based businesses (not allowed under IFRS)
Rising cost environments for tax benefits

Learn About LIFO →