FAQs: Weighted Average Cost Calculated Cost Method
The calculated cost method 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 Weighted Average Cost method is best suited for Retail clients.
Q: How is the calculated cost determined for this method?
A: The system calculates the cost as the average price paid over the item's purchase history since the on-hand was last zero.
- Cost is recalculated every time new inventory is received.
- Sales or deductions do not influence this cost.
- 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?
Key strengths of the Weighted Average Cost method include:
- Smooths out price fluctuations over time.
- Easy to explain and predict.
- Provides a consistent cost value for reporting.
Q: What are things to keep in mind if selecting this method?
When using 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.
Q: Can you provide an example of how calculated cost is determined using Weighted Average Cost?
A: The table below demonstrates an example of how the calculated cost is determined using Weighted Average Cost.
A: The table below demonstrates an example of how the calculated cost is determined using Weighted Average Cost.
Key takeaway: Weighted Average Cost takes the average of all purchases divided by the quantities received to determine the calculated cost.
Related Article:
Feature Overview: Calculated Cost
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