The Weighted Average is an optional Costing Method that can be chosen on the Above-Store Actual vs Theoretical Analysis report and is a more advanced Costing Method due to the fact that it considers quantity at the time the cost is recorded to provide a more .
To understand Weighted Average better, let's take a look at the example below. This example lists the count details for a period, which spans the month of February, and begins with 3 cases of potatoes at $16.00/case from January's Ending Inventory Count.
Price Per Unit
|January 31||3||$16.00||$48.00||Beginning Inventory|
At the end of the month, the system will calculate the per-unit weighted average of the Beginning Inventory and all purchases.
|[(3 x $16.00) + (10 x $20.00) + (10 x $18.00) + (10 x $22.00)] / (3 + 10 + 10 + 10) = $19.64 per case|
$648 / 33 Total Cases = $19.64 per case
If the Standard Average is used, then the calculation of the above numbers would be as follows:
|( $16.00 + $20.00 + $18.00 + $22.00) / 4 = $19.00 per case|
At the end of the month, the final count is 12 cases. In using the per case cost, the amounts will be listed as follows:
- Weighted Average: 12 cases x $19.64 per case = $235.68
- Standard Average: 12 cases x $19.00 per case = $228.00
There is roughly a $7 variance between the Weighted Average and the Standard Average in this scenario. Using the Weighted Average rather than the Standard Average provides a greater level of precision when calculating costs.