Average cost definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Average cost can be defined as: Also called weighted average. Method for assigning inventory cost to sale; the cost of available-for-sale units is divided by the number of units available to determine per unit cost prior to each sale that is then multiplied by the units sold to yield the cost of that sale. Average cost if an inventory cost flow assumption, average cost method not specifically identifying the inventory that is sold. The average cost method creates an average cost for the inventory on hand and assumes units sold to be at this average. A cost flow assumption method like average cost method is used when we have inventory units that are much the same.
