---
title: "Weighted average cost"
description: "What is weighted average cost? A costing method that values every unit at the average cost of all units held, updated on each receipt. See a worked example."
url: https://1flux.ai/glossary/weighted-average-cost
last_updated: 2026-10-10
---

[Procurement and inventory](https://1flux.ai/glossary#procurement-and-inventory)

# Weighted average cost

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

Glossary Updated 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](https://1flux.ai/glossary/fifo) in [weighted average or FIFO?](https://1flux.ai/blog/weighted-average-vs-fifo)

In 1flux

Weighted average cost is one of three costing methods you can choose for each legal entity, alongside FIFO and standard cost. [See inventory costing and valuation](https://1flux.ai/products/inventory/costing-and-valuation)

Related

## Keep exploring

### [FIFO](https://1flux.ai/glossary/fifo)

A costing method that uses the oldest purchase costs first.

### [Standard cost](https://1flux.ai/glossary/standard-cost)

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

### [Inventory valuation](https://1flux.ai/glossary/inventory-valuation)

The money value of the stock you hold.

### [Costing and valuation](https://1flux.ai/products/inventory/costing-and-valuation)

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

Last updated 10 October 2026