Weighted-average cost
Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles
Definition
Inventory cost flow assumption that values COGS and ending inventory using a weighted-average unit cost over the period; smooths price volatility.
Weighted-average cost in plain English
When a store buys the same product many times at different prices, it needs a rule to decide what each unit "cost" when it sells one. Weighted-average cost blends all those purchase prices into one average per unit, so every item sold and every item still on the shelf is valued at that same smoothed-out cost. Picture pouring $1 candies and $2 candies into one big jar and mixing them — you stop tracking which exact candy is which and just charge the average price for any candy you grab. This evens out the ups and downs of changing prices instead of letting a single expensive or cheap batch swing your numbers. (COGS just means "cost of goods sold," the cost of the items a business actually sold.)
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