Weighted Moving Average Costing Method
Under this method, Inventory Control pools the costs of all acquired units at a location, so that the costs of one unit cannot be distinguished from the costs of another. The program assigns a unit cost to items that are withdrawn from a location’s inventory for sale or use. This unit cost is an average of all units in the location’s pool at that time.
When you receive new items into inventory, the program adds the total cost of the units received to the total cost of the items already in inventory at that location. When a unit cost is required, Inventory Control divides the total cost by the units on hand at the location, and rounds the result to the nearest currency unit (for example, the nearest cent).
To determine the total cost of a shipped item, Inventory Control multiplies the number of units shipped by the calculated average unit cost at the location (or the most recent cost if the inventory is less than zero).
The weighted moving average method tends to yield an item cost that is between those resulting from the FIFO and LIFO methods.
See also
First-in, first-out (FIFO) costing method
Last-in, first-out (LIFO) costing method