Weighted average uses unit weights. It is not the simple mean of invoice prices. A 10-unit purchase and a 100-unit purchase must not receive equal weight merely because each appears on one invoice. Begin with a supported pool of interchangeable units and qualifying costs in one unit of measure.
Periodic weighted average combines opening inventory and all purchases for the period. Divide full-period goods available at cost by full-period units available, then assign that rate to units sold and units remaining. A purchase late in the period affects every unit assigned under this periodic calculation.
A perpetual moving average follows event order. Recompute the pool's cost per unit after each purchase. Use the current rate for the next sale, reduce both units and cost, and retain the unrounded balance. A later purchase cannot change cost already assigned to an earlier sale. This availability rule can make periodic and moving-average results differ even when they use the same transactions.
Carry full precision through the schedule and round only the displayed amounts. Reconcile ending units to the quantity rollforward. Also reconcile cost of goods sold plus ending inventory to goods available at cost. A plug to the last unit hides rounding or data errors.
ASC 330-10-30-9 identifies average as a cost-flow assumption. The official IAS 2 overview identifies weighted average for ordinarily interchangeable inventory. Neither source validates the selected pool or its inputs.
Use the Cedar average-cost example before completing the independent Northstar practice.
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Understand this concept
- Explain why periodic weighted average uses the full-period pool while a perpetual moving average recomputes after each purchase and can produce a different assignment.
Apply this concept
- Compute periodic weighted-average and perpetual moving-average unit cost, cost of goods sold, and ending inventory with controlled precision and a cost reconciliation.
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- Inventory cost — Understand
To understand this concept: Required. Average cost divides a qualifying cost pool by its units.
- Weighted-average inventory cost — Understand
To apply this concept: Required. The timing distinction controls the calculation.
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- Weighted-average inventory cost — Apply
Required level here: understand. Required. The timing distinction controls the calculation.