Weighted Average Cost
Also called: moving average cost, average cost method
What is Weighted Average Cost?
Weighted average cost values inventory at the blended average rate of all units held, recalculated as each purchase arrives. Every unit of an item then carries the same cost regardless of which consignment it came from.
Why Weighted Average Cost matters
Where purchase prices move constantly — vegetables, commodities, imported goods — average costing gives a stable, defensible cost base without tracking each consignment separately.
Weighted Average Cost formula
Weighted average cost = Total value of stock on hand ÷ Total units on hand
Recomputed on every purchase receipt.
How Weighted Average Cost works in practice
Recalculate after each receipt rather than monthly, so the rate used in costing reflects what you have actually paid. Most stock systems do this automatically once landed costs are entered.
Worked example
50 units at ₹40 plus 50 at ₹50 gives a weighted average of ₹45 per unit.
Frequently asked questions
Yes. It is one of the standard permitted methods, alongside FIFO.