Weighted average cost
In Arabic المتوسط المرجّح للتكلفة
A costing method that values every unit of an item at the average cost of all units on hand, recalculated whenever new stock arrives.
In plain words
Each time goods are received, the value of what is on hand is added to the value of what arrived, and the total is divided by the new quantity. Every sale until the next receipt is costed at that average.
It suits goods where one unit is the same as the next, such as packaged food, drinks or spare parts, and it smooths out price swings between deliveries.
The common mistake is averaging the purchase prices instead of the values. Receipts of 100 units and 10 units at different prices do not average to the midpoint; the larger receipt weighs more.
- On hand
- 100 pcs, SAR 1,000
- Received at SAR 13.00
- 50 pcs, SAR 650
- Total
- 150 pcs, SAR 1,650
- New average
- SAR 11.00
- Cost of the next 60 pcs sold
- SAR 660
In Axon Suite
How Axon Suite handles it
Weighted average is the default costing method for a new item in Axon Suite, and every issue is valued at the running average and posted to the ledger.
Feature
Five costing methods per item
Each item carries one of five costing methods: weighted average, FIFO, first expiry (FEFO), standard or specific cost. Every issue is valued by that method and posted to the ledger, and voiding a document reverses it at the cost it was recorded at.
Open: Five costing methods per item