Calculating Inventory Weighted Average Cost
It is a critical procedure for merchants to determine the value of their inventory. In this article, we are going to discuss how you can streamline your inventory management by calculating the weight average inventory.
If you are running an e-commerce business, you are going to have to be able to keep track of your inventory and its value. You have to know how much your inventory is worth at any given time so that you can figure out whether or not you can reach your revenue goals.
Fortunately, you can use several inventory-costing methods to determine your weighted average inventory. One of such methods is the weighted average cost.
In this article, we are going to discuss a bit about the weighted average inventory.
Weighted average inventory
Also known as the weighted average cost, this method uses an inventory valuation formula to determine the average cost of goods sold and inventory.
This method is particularly more helpful when items in the inventory are intermingled or identical in such a way that it becomes impossible to assign a specific cost to each item.
Here are the reasons why you need to know how to calculate the weighted average costs.
- It makes it easy to keep tabs on the inventory value. This way, you will be able to keep up with the inventory counts. With all facts and figures in hand, you will be able to track and calculate inventory value the right way.
- Since you will have to determine the average cost of all items in the stock, you are going to have to deal with a lot less paperwork. It means that you might not need to keep detailed purchasing records for each item.
- The formula used in WAC helps you save time. This inventory valuation procedure doesn’t require you to determine the value of each item that you have in the stock. As a result, you will be able to save money and cut valuation costs in the long run.
Calculating the WAC
The formula used in the calculation of weighted average costs is not complicated at all. Even if you are not good at numbers, you can use this formula to determine the average price of each of the items in your stock.
The first thing to determine here is the total cost of the purchased goods. You can get that sum at the arrival of the stock. Make sure to add every item in the count while writing down its cost. The procedure should yield the total cost of the stock and the number of items it has. Now, divide total costs by the number of items. The end number will be the average cost of each item in the stock.
Here is the formula:
Cost of goods in the stock/Total number of units in the stock = WAC per item
This procedure is quite simple compared to other methods used in inventory valuation. You can use this formula with other valuation processes to speed up the overall inventory management process.