Tools
Weighted average cost calculator for stock valuation
Enter what you hold and what it cost on average, then the purchase that just arrived. The calculator gives the new average cost per unit and the value of the stock.
In short
This free weighted average cost calculator from SimpleERP works out a product's new average cost and stock value when a purchase arrives at a different price. It uses the same formula the product applies on every purchase.
How to use it
Run it once per purchase, in the order the purchases arrived.
Enter the quantity on hand and its average cost
What is in the warehouse now and what each unit is worth today, such as 100 sheets at $5.
Enter the purchase
The quantity received and the cost per unit before any VAT or GST you can reclaim.
Read the new average
The new cost per unit, the new quantity and the value of the stock. Use the new figures as the starting point for the next purchase.
How does the weighted average change on every purchase?
Each purchase is blended into what you already hold, weighted by quantity. A small purchase at a high price moves the average a little; a large one moves it a lot. Sales do not change the average; they take units out at the current average cost.
- Purchases change the average when their cost differs from it.
- Sales and issues go out at the current average, which becomes the cost of goods sold.
- When stock reaches zero, the next purchase sets a fresh average at its own cost.
Illustration of stock on hand by warehouse at average cost, with a low-stock row highlighted and a movement ledger.
Why use weighted average instead of FIFO?
Weighted average is one of the two cost formulas IAS 2 allows, alongside FIFO, and national standards do the same. It suits goods that are mixed together in the warehouse, such as sheets, pipes, fasteners and fabric, where nobody tracks which batch a unit came from.
- One cost per product, easy to check against the purchase bills.
- Smooths price swings, so margins do not jump with each delivery.
- Pick one formula and keep it; changing it changes your closing stock and profit.
Do this automatically in SimpleERP
SimpleERP values every product at weighted average cost by warehouse. Each supplier bill updates the average as it posts, and each invoice takes stock out at the average and books the cost of goods sold.
- Average cost per warehouse, so the depot and the shop can differ.
- A movement ledger shows every receipt and issue for each product.
- Work orders take components out at average cost and put finished goods in at actual cost.
Illustration of stock on hand by warehouse at average cost, with a low-stock row highlighted and a movement ledger.
The maths
How it is calculated
The new average is the total value divided by the total quantity.
- Value on hand = quantity on hand × average cost.
- Value received = quantity received × cost per unit.
- New average = (value on hand + value received) ÷ (quantity on hand + quantity received), kept to four decimals as SimpleERP stores it.
- New stock value = new quantity × new average, rounded to the cent.
- If nothing is on hand, the new average is simply the cost of the purchase.
Example
Worked example
Harbor Supply Co. holds 100 steel sheets at $5 each and receives 50 more at $6.20.
| Line | Quantity | Value |
|---|---|---|
| On hand: 100 × $5.00 | 100 | $500.00 |
| Received: 50 × $6.20 | 50 | $310.00 |
| After the purchase | 150 | $810.00 |
| New average: $810 ÷ 150 | $5.4000 |
If 30 sheets then go into a work order, they leave at $5.40 each, $162 in all, and the average stays at $5.40 for the 120 left.
Honest limits
What this calculator does not do
- It handles one purchase at a time; run it again for each later purchase.
- FIFO and batch-wise costing are not covered, here or in SimpleERP.
- Freight and other landed costs are not added; include them in the cost per unit if you want them in stock value.
FAQ
Questions, answered
What is the weighted average cost formula?
Total value of stock divided by total quantity. For 100 units at $5 plus 50 at $6.20, that is $810 ÷ 150 = $5.40 per unit.
Does a sale change the weighted average cost?
No. A sale takes units out at the current average, so the value and quantity fall together and the average stays the same. Only receipts at a different cost move it.
Is weighted average cost allowed for stock valuation?
Yes. IAS 2 allows FIFO or weighted average cost for goods that are not specifically identified, and so do most national standards; US GAAP also allows LIFO. Check your own standard with your accountant.
Should purchase cost include VAT or GST?
Not if you reclaim it, because the tax comes back to you. If you cannot reclaim it, as with US sales tax paid on materials you use, the tax is part of the cost.
Related
Keep reading
Inventory
Stock on hand by warehouse at weighted average cost, with a movement ledger and a low-stock list.
Read moreWeighted average cost
A stock valuation method where every unit carries the same cost: stock value divided by quantity, re-blended on each receipt.
Read moreWeighted average cost
How weighted average cost values stock and cost of goods sold, with the formula, a worked example and how it compares with FIFO.
Read more
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