Weighted Average
The weighted average cost flow assumption uses the weighted average of all units purchased. Each time a purchase is made, a new weighted average is computed. The first purchase occurs on January 4. We get 1,000 units at a cost of $35 each. The total value of the order is $35,000. To find the weighted average, we take the total balance of Inventory and divide by the total number of units.
| Total inventory value | $35,000 |
| Total units | 1,000 |
| Weighted average | $ 35.00 |
When the purchase on January 5 is made, we need to recompute the weighted average. We do this by taking the total value of the purchases ($35,000 + $50,000) and dividing by the total number of units (1,000 + 1,250):
| Total inventory value | $85,000 |
| Total units | 2,250 |
| Weighted average ... |
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