Weighted average cost
In one sentenceAn inventory costing method in which the unit cost is calculated by dividing the total cost of the quantities available by their number, and recalculated with each purchase in the perpetual system.
Simply put
Instead of tracking which carton you bought at which price, you pool all the quantities and take their average cost weighted by quantity.
It is an easy, stable method that suits similar items mixed together in the warehouse, and it softens the effect of fluctuating purchase prices on profit.
Worked example
A store bought 100 cartons at 10 SAR, then 300 cartons at 12 SAR.
First batch100 × 10 = 1,000 SAR
Second batch300 × 12 = 3,600 SAR
Total4,600 SAR for 400 cartons
Cost per carton = 4,600 ÷ 40011.50 SAR
Formula: Total cost of quantities available ÷ number of units available
Don't confuse it with
First in, first outUnder FIFO sales are charged at the prices of the oldest batches, not at the average of all batches.