Weighted average cost (AVCO)
Average cost, or AVCO, assigns inventory costs using a weighted average of the costs of comparable units. Divide total cost by total units, rather than averaging unit prices without weights. A periodic average uses the period’s available units; a moving or cumulative average is recalculated after receipts in a perpetual system. Inventory is still tested against net realisable value.
Worked example
Ten units at $4 and 30 units at $6 cost $220 in total. Average cost is $5.50 per unit.
Common mistake
AVCO determines cost; inventory must still be measured at the lower of cost and net realisable value. Keep full precision during calculations and round only the final monetary answers.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Supporting | July 2027–August 2028 |
| ACCA | F2 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Average cost, Weighted average inventory cost, Weighted average cost, AVCO, AVCO (average cost)