Lesson plan
Average cost method
Average cost method is an inventory valuation method in accounting that assigns a cost to inventory based on the average cost of goods available for sale during a period. Instead of tracking individual purchase prices, the method applies an average unit cost to both cost of goods sold (COGS) and ending inventory. The average unit cost is computed by dividing the total cost of goods available for sale by the total number of units available for sale. The resulting weighted-average cost per unit is then used to value inventory and cost of goods sold. Two principal variations of the average cost method are commonly used: the weighted-average cost method, applied in a periodic inventory system, and the moving-average cost method, applied in a perpetual inventory system.
Article summary
Average cost method is an inventory valuation method in accounting that assigns a cost to inventory based on the average cost of goods available for sale during a period. Instead of tracking individual purchase prices, the method applies an average unit cost to both cost of goods sold (COGS) and ending inventory. The average unit cost is computed by dividing the total cost of goods available for sale by the total number of units available for sale. The resulting weighted-average cost per unit is then used to value inventory and cost of goods sold. Two principal variations of the average cost method are commonly used: the weighted-average cost method, applied in a periodic inventory system, and the moving-average cost method, applied in a perpetual inventory system.
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.