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Procurement and inventory

Weighted average cost

What is weighted average cost, and how is the average recalculated when new stock arrives?

GlossaryUpdated 10 October 2026

Definition

Weighted average cost is an inventory costing method that values every unit of an item at the average cost of all units held, recalculated each time new stock is received.

What is weighted average cost used for?

The formula is (value of stock on hand + value of new receipt) ÷ (quantity on hand + quantity received). It smooths out price swings and is simple to explain, which is why many trading companies use it.

A new receipt changes the average

Example
On hand: 100 units at AED 10
AED 1,000
Received: 50 units at AED 13
AED 650
Total: 150 units
AED 1,650

New average cost (1,650 ÷ 150)

AED 11

Every unit sold is costed at AED 11 until the next receipt.

The trade-off is that in a rising market, stock is valued below its latest replacement cost. Compare it with FIFO in weighted average or FIFO?

Related

FIFO

A costing method that uses the oldest purchase costs first.

Standard cost

A set cost per item, with differences recorded as variances.

Inventory valuation

The money value of the stock you hold.

Costing and valuation

Weighted average, FIFO or standard cost per company, with cost layers you can audit.

See purchasing and stock run as one flow

Watch a requisition become a purchase order, a GRN, a goods receipt report and a purchase invoice in 1flux, with stock and the journal posted together.

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