What is Weighted Average Cost?

The weighted average cost is one of the methods of determining the amount of inventory that goes into the cost of goods sold (COGS) and inventory (a figure that can be used to assign a cost to both ending inventory and the cost of goods sold). The weighted average method is most commonly employed when inventory items are so intertwined that it becomes difficult to assign a specific cost to an individual unit. 

This can help ensure the accuracy of your latest stock. For instance, when you purchase items, you may pay different prices due to the diversity in the types of inventory stock or the same stock items at different times, with WAC you can calculate the cost of inventory with the average price and record it into the COGS and inventory.

With Biztory's new inventory feature, you do not need to calculate the stock value on your own. The system will use this formula to generate the stock value and record it into COGS and your inventory automatically.

Current = Brought forward from the previous period 

New = The new purchase in this period

For example:

You bought ITEM A on 1st of May 2020 and 2nd May 2020. The price has varied between these two days.

1st May 2020 - RM1

2nd May 2020 - RM2

1. On 1st May, you recorded RM1 into the purchase invoice.

2. On 2nd May 2020, you recorded RM2 into purchase invoice.

3. Then, go to product/services stock report. You may see that Biztory has automatically taken in RM1.50 as unit cost by using WAC method.

4. Even, if you sold the ITEM A. 

5. The unit cost will not changing due to the sales.  

6. The inventory cost will be taken in automatically into COGS (Profit and Loss).

7. And as well as into closing inventory (Balance Sheet).

NOW, you do not need to do journal adjustment for recording the closing and opening inventory!

Click Weighted Average Cost vs Last Cost to know what is the differences between WAC and Last Cost.