Weighted Average Cost
Weighted average cost (WAC) is an inventory valuation method that blends the cost of all units on hand into one average, recalculated with each purchase, and charges that average to COGS as units sell. Where FIFO tracks cost layers, WAC smooths them. It suits sellers with many SKUs, frequent small receivings, or commingled stock where matching a sale to a specific purchase batch is impractical.
The mechanics are simple. You hold 1,000 units carried at $8.00, then receive 500 more at a landed cost of $11.00. New average: (1,000 × $8 + 500 × $11) ÷ 1,500 = $9.00. Every unit sold from that point charges $9.00 to COGS until the next receiving shifts the average again. No layers to track, no question of which batch shipped.
The trade-off is resolution. WAC mutes cost spikes, which keeps margins stable on paper but can delay your noticing that the latest container came in 25% more expensive. For a 40-SKU brand reordering monthly, that smoothing is usually a feature; for a 3-SKU brand where one tariff change moves everything, FIFO's sharper signal may serve better. Either way the method must be applied consistently, and the average must be built on true landed cost, not invoice price. We set the method and maintain it as part of monthly bookkeeping.
Where this shows up in our work
This isn’t textbook material for us; it’s the day-to-day of keeping seller books right. See how we handle it in practice:
Monthly Ecommerce Bookkeeping→