Average cost inventory method

[@TheFinanceStoryteller]

If you are looking for powerful inventory software that’s easy to use, then try InFlow inventory management software for free: inflow.grsm.io/AVCO

[@ClintDavids-j7x]

Everything is beginning to make sense. Thank you @The Finance Storyteller.

[@TheFinanceStoryteller]

I am so happy to hear that, Clint! Have a look at my FIFO and LIFO videos as well, those might help you too: kzbin.info/aero/PLKbmcnUUQMll_T7-NtXgzMv4h7Q1CRh_s

[@konstancyja82]

Its good and very useful to have the suggested list of video series to watch next, all of them are very good!!! Thank you

[@TheFinanceStoryteller]

Glad you like them! And yes, everything is linked to everything else!

[@ChoogyNet]

Thanks. This is very useful topic

[@TheFinanceStoryteller]

Glad it was helpful!! I have videos using the same numerical example on FIFO and LIFO as well: kzbin.info/www/bejne/jJrGnJquocadha8

[@lakshmikanthanramas2444]

Excellent

[@TheFinanceStoryteller]

Thank you so much 😀

[@LilttleAudrey]

Hi !! Thanks for another great lesson ! Can you explain pls when using average cost method , at example first box was bought for 100$ and all other boxes after that are bought for 10. Untill when will first box affect the cost ?! Thank you 🤗

[@TheFinanceStoryteller]

That's a nice one! If we buy 50 units at $100 per unit, and 350 units at $10 per unit, then the weighted average cost is $21.25 per unit, which we use for COGS as well as inventory valuation. There are 50 units left at the end of Q2, they would have a value of 50 times $21.25 = $1062.50. In Q3 (July, August, etc.) we buy more units at $10 each. Blend those units together with the remaining units from end of Q2 that were at $21.25, and you get to a new weighted average inventory cost somewhere between $10 and $21.25. Basically that first box will keep its effect for a very very long time, though its impact will get smaller and smaller. Unless your number of units in stock at the end of a reporting period hits zero at any point, then you start afresh. Under FIFO, the affect of the high priced first box hits the P&L much sooner, under LIFO you might be stuck with it for a much longer time.

[@LilttleAudrey]

@@TheFinanceStoryteller thank you very much for such detailed great explanation !! 💞💞💞

[@TheFinanceStoryteller]

You're welcome! Thanks for asking the question, I like a challenge once in a while, and it's helpful to reflect on a topic from multiple angles.