FAQs: Perpetual Weighted Average Cost Calculated Cost Method
The calculated cost method Perpetual Weighted Average Cost is one of the available calculated cost methods in Yellow Dog Inventory. It’s important to choose the best calculated cost method for your business to ensure accurate, consistent, and audit-compliant cost valuations of inventory.
Q: What client type is this cost method best suited for?
A: The Perpetual Weighted Average Cost method is best suited for Retail clients. Particularly those that want inventory cost to stay closely aligned with real-time activity.
Q: How is the calculated cost determined for this method?
A: The calculated cost of an item is determined using a weighted average that gets re-evaluated when inventory is sold/depleted.
- Cost is recalculated every transaction, i.e. both purchases and sales.
- The cost per unit used for the sale is the current average cost at the time of the sale.
- The calculated cost resets when the on-hand quantity is zero.
- This method can be applied:
- Per store: Cost is calculated independently per store.
- All stores: Cost is calculated using purchase data across all stores.
Q: What are the strengths of this method?
A: Key strengths of the Weighted Average Cost method include:
- Provides real-time dynamic costing.
- Smooths fluctuations while staying current.
- Useful for high-volume, fast-moving items.
Q: What are things to keep in mind if selecting this method?
A: When using Perpetual Weighted Average Cost it is important to keep in mind:
- While this is important for any calculated cost method, purchasing must be enter in a consistent and timely manner to ensure accurate costing.
- For the all stores option, averaging across stores may distort true store-level profitability.
- Less ideal for items with high cost volatility.
Q: Can you provide an example of how calculated cost is determined using Perpetual Weighted Average Cost?
A: The table below demonstrates an example of how the calculated cost is determined using Perpetual Weighted Average Cost.
A: The table below demonstrates an example of how the calculated cost is determined using Perpetual Weighted Average Cost.
Key takeaway: Perpetual Weighted Average Cost recalculates the average unit cost after each transaction by dividing the total cost on hand by the total units on hand.
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Feature Overview: Calculated Cost
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