Average Cost Pricing

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What is Average Cost Pricing?

Average Cost Pricing is a cost pricing method that calculates the average unit cost by dividing the total cost of goods available for sale by the total units available for sale. This is done by applying a weighted-average approach to all the units in the (ending) inventory.

The Average Costing method levels out the effects of cost increases and decreases, because the cost for the ending inventory calculated under the method is influenced by all the prices paid during the year and by the beginning inventory price. The method disregards the fact that more recent costs are more relevant for income measurement and management decision-making.

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Compare also: Variable Costing  |  Absorption Costing

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