How do I calculate weighted average cost?

Divide the total cost of goods available for sale (beginning inventory plus all purchases at landed cost) by the total units available for sale. For example, $3,600 across 300 units gives a weighted average cost of $12 per unit, which you apply to both COGS and ending inventory.

What is the difference between weighted average and FIFO?

FIFO consumes the oldest cost layers first; weighted average blends all costs into one figure. In a period of rising costs, FIFO reports lower COGS and higher profit, while WAC sits between the extremes and reacts more gently to price swings. Pick one and apply it consistently.

What is the difference between periodic and perpetual weighted average?

Periodic computes one blended cost at the end of the period; perpetual recalculates the blended cost on every receipt so your unit cost is always current. High-velocity ecommerce sellers generally need perpetual WAC to book accurate COGS on each sale in real time.

Should I use supplier price or landed cost for WAC?

Use landed cost, the all-in per-unit cost including freight, duty, taxes, and prep. Averaging only the supplier invoice understates true cost, inflates gross margin, and distorts taxable income. The blended average is only as accurate as the unit cost you feed into it.

Glossary

What is Weighted average cost?

Inventory valuation method that recalculates a blended unit cost on every receipt.

Weighted average cost (WAC) is an inventory valuation method that recalculates a single blended unit cost every time you receive new stock. Instead of tracking which specific batch a sold unit came from, WAC pools all the units you own and divides total inventory cost by total units on hand. That blended figure becomes the cost of every unit you sell until the next receipt changes it. It is the quiet workhorse behind cost of goods sold for sellers who buy the same SKU repeatedly at shifting prices.

For Amazon and multichannel sellers, weighted average cost is attractive because it smooths out the price noise of real supply chains. When your unit cost drifts up and down across purchase orders, freight rates, and currency swings, WAC blends it into one defensible number rather than forcing you to decide which specific units left the shelf. The result is a weighted-average cost of goods sold that is stable, easy to audit, and well suited to high-volume catalogs.

How to calculate weighted average cost

The weighted average cost formula is: total cost of goods available for sale divided by total units available for sale. 'Available for sale' means everything you owned during the period, beginning inventory plus every purchase, valued at landed cost. The result is the average cost per unit, which you then apply to both the units sold (COGS) and the units left on hand (ending inventory).

Worked example: you start with 100 units that cost $10 each ($1,000), then buy 200 more at $13 each ($2,600). Total cost available is $3,600 across 300 units, so your weighted average cost is $3,600 / 300 = $12 per unit. Sell 250 units and your COGS is 250 x $12 = $3,000; the remaining 50 units are valued at 50 x $12 = $600. Every unit carries the same blended $12 regardless of which purchase order it physically came from.

•WAC per unit = total cost of goods available for sale / total units available for sale
•Beginning: 100 units x $10 = $1,000
•Purchase: 200 units x $13 = $2,600
•Available: $3,600 / 300 units = $12 per unit
•Sell 250 units: COGS = 250 x $12 = $3,000; ending inventory = 50 x $12 = $600

Perpetual vs periodic weighted average

There are two flavors of WAC. Periodic weighted average computes one blended cost at the end of the period using all purchases for that period, which is simple but means you cannot value a sale until the period closes. Perpetual weighted average recalculates the blended cost on every single receipt, so at any moment you have an up-to-date unit cost and an accurate inventory value, which is what high-velocity ecommerce sellers actually need.

The perpetual method is more work by hand but far more useful, because it lets you book accurate COGS on each sale in real time rather than waiting for a month-end true-up. This is exactly the kind of calculation accounting software should automate. BeanHawk computes perpetual WAC from landed cost, recalculating the blended unit cost on every inbound receipt, so your inventory valuation and COGS stay correct between closes without manual journal entries.

Weighted average cost vs FIFO

WAC and FIFO are the two methods most ecommerce sellers choose between (LIFO is rarely used and is barred under IFRS). FIFO assumes the oldest cost layers are consumed first, so in a period of rising costs FIFO leaves your most recent, higher costs in ending inventory and reports lower COGS, which means higher reported profit. WAC blends everything together, so it lands between the extremes and reacts more gently to price swings.

Neither is 'more correct'; they are different conventions, and your books should pick one and apply it consistently. WAC wins on simplicity and is ideal when you buy the same SKU repeatedly and do not care about tracing individual batches. FIFO wins when you need cost layers to reflect physical flow, for instance when shelf-life or batch tracing matters. The practical takeaway: in periods of rising unit costs, WAC typically reports a higher COGS and lower profit than FIFO, and you should know which way your method leans.

Why landed cost is the right input for WAC

A weighted average cost is only as accurate as the unit cost you feed it. If you average only the supplier's invoice price and ignore freight, duty, and prep, your WAC understates true cost and your gross margin looks better than it is. The correct input is landed cost, the all-in per-unit cost once every inbound expense is allocated, so the blended figure reflects what each unit actually cost to get into Amazon's warehouse.

Getting this right matters because COGS flows straight to your profit and loss statement and your taxable income. A WAC built on landed cost gives you a defensible inventory value, an accurate gross margin, and books that reconcile to cash. BeanHawk rolls freight, duty, and prep into landed cost before computing the blended average, so the cost of goods sold on every sale reflects reality rather than just the supplier's invoice.

Frequently asked questions

What is weighted average cost?: It is an inventory valuation method that pools all units of a SKU and divides total inventory cost by total units to get one blended cost per unit. That blended figure is applied to every unit sold, so you do not have to track which specific batch a sold unit came from.
How do I calculate weighted average cost?: Divide the total cost of goods available for sale (beginning inventory plus all purchases at landed cost) by the total units available for sale. For example, $3,600 across 300 units gives a weighted average cost of $12 per unit, which you apply to both COGS and ending inventory.
What is the difference between weighted average and FIFO?: FIFO consumes the oldest cost layers first; weighted average blends all costs into one figure. In a period of rising costs, FIFO reports lower COGS and higher profit, while WAC sits between the extremes and reacts more gently to price swings. Pick one and apply it consistently.
What is the difference between periodic and perpetual weighted average?: Periodic computes one blended cost at the end of the period; perpetual recalculates the blended cost on every receipt so your unit cost is always current. High-velocity ecommerce sellers generally need perpetual WAC to book accurate COGS on each sale in real time.
Should I use supplier price or landed cost for WAC?: Use landed cost, the all-in per-unit cost including freight, duty, taxes, and prep. Averaging only the supplier invoice understates true cost, inflates gross margin, and distorts taxable income. The blended average is only as accurate as the unit cost you feed into it.

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