Understanding weighted average costing for inventory

Weighted average costing determines inventory costs based on information from purchase orders and job order estimates. For purchase orders, Made2Manage adjusts costs when items are received into inventory. For job orders, Made2Manage adjusts its costs depending on the type of item.

Made2Manage calculates costs as follows:

[(Quantity on hand × unit average cost) + (Quantity received × PO price)] / new on-hand quantity

For an example. If you ordered five motors at $ 20 and later placed a purchase order for five more motors at $25, Made2Manage would calculate the average cost for those motors at $22.50. That cost takes effect when you receive all items from both purchase orders into inventory.

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