Average Cost

What is Average Cost?

Average Cost is an inventory management method for determining the cost of goods sold and the value of the closing inventory.

The inventory management method assumes that units are valued at an average cost per unit of all units. The method calculates the average cost per unit by dividing the total cost of goods (opening inventory and purchases during the period) by the total number of units.

For further information on the method see the Wikipedia definition.

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Last modified June 24th, 2013 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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