Weighted average cost (WAC) is an accounting practice used extensively by retailers, e-commerce companies and other businesses that sell physical products. Used by business business-to-consumer (B2C) and business-to-business (B2B) companies, it provides a better understanding of a business’s cost of goods available and its inventory. To learn more about the WAC accounting method and how it’s performed
Calculating WAC: What You Should Know
To calculate WAC for your business, you must take your cost of goods available and divide it by the number of units available. This number will reflect the WAC for each of those available units. Still confused? Here’s an example: If your cost of goods available is $50,000 and you have 5,000 units of that product available, the WAC per unit of that product is $10.
Benefits of Using the WAC Accounting Method
There are several benefits to using the WAC accounting method, one of which is simplicity. From an outsider’s perspective, calculating WAC may seem like a tedious and difficult process, but it’s actually quite easy. The only numbers required to calculate WAC are the cost of goods available and the number of units available. Once you’ve identified those two numbers, you can calculate the WAC for the product.
Using the WAC accounting method can also help you understand how much it costs to produce a product, per unit. When a business handles hundreds or thousands of orders per day, it may struggle to keep track of costs. This is where the WAC is helpful, however. This accounting method attaches a per-unit cost to the product, allowing businesses to see how much they spend to product or acquire a product that they sell.
Cost of Goods Available Isn’t the Same as COGS
It’s important to note that cost of goods available is not the same as cost of goods sold. The cost of goods sold (COGS) refers to the value of the product’s sales. In comparison, cost of goods available refers to the value of inventory in addition to the cost of goods purchased.
Hopefully, you have a better understanding of the WAC accounting method after reading this. To recap, this method is used to calculate the “weighted average cost” of a specific product. It’s performed by taking the cost of goods available and dividing it by the number of units available, resulting in the product’s WAC.
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