Accounting for Weighted Average Calculation: A Guide to Accurate Inventory Valuation
Weighted average calculation is a critical accounting method used to determine the cost of goods sold (COGS) or the value of inventory when multiple purchases of the same item occur at different prices. For instance, if a company purchases 100 units of a product at $5 per unit and later purchases 50 units at $6 per unit, the weighted average cost per unit would be $5.20. Understanding weighted average calculations is essential for accurate financial reporting and effective inventory management.