Weighted average cost divides the total cost of goods available for sale by the total units available during the period. Applying that one average to the units still on the shelf at count time gives your period-end value. The answer is only as reliable as the five figures behind it, and you check those on count day, in a fixed order, before you post anything.
Each figure feeds the next. A mistake in an early figure carries all the way to the end, so the checks matter as much as the arithmetic. The worked numbers come from a published accounting textbook, so you can test your process against its calculations. The period-end example is in OpenStax, "Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method".
The textbook frames it this way, "considering the entire period," which is why the example uses the periodic method. Stock is counted once, at the end, and the average is worked out from the period's totals rather than updated with each purchase.
The chapter also shows how the totals connect. OpenStax, section 10.1 includes Figure 10.3, which illustrates how to calculate the goods available for sale and the cost of goods sold. Those two results sit at either end of the chain your count closes. A count error on the shelf becomes a cost error in the accounts.
The five figures, in order, are the count unit, the units available, the cost available, the average unit cost, and the ending value with cost of goods sold. Each has a check. Do not move to the next figure until the current one passes.
1. Confirm the count and the cost use the same unit
Start with the unit of measure, before any arithmetic. A count of single bottles means nothing next to a cost recorded for a case of twelve. Your average unit cost has to be in the same unit as your count, or the ending value will be wrong by the size of the pack. Write down the pack size for every item you buy in one unit and sell in another.
Price lists show the same problem. Frappe's Item Price documentation gives the example of rice sold in 1 KG and 500-gram packets. It says you can record the unit of measure on the item price, and the correct price is applied based on the unit selected in the transaction ( Frappe, "Item Price"). The principle carries over to cost. Every cost entry should state the unit it describes, and every cost should be converted to the count unit before you average it.
Set up the count sheet so the unit sits on every line, not only in the header. A workable layout has five columns: item, unit, counted quantity, unit cost, and extended value, which is quantity multiplied by unit cost. The extended value helps you spot a line where the quantity and the cost do not match. Scan the unit costs for any line that looks like a multiple of your pack size compared with similar items. That often means a case price has landed in a single-unit column.
Settle the cutoff at the same time. Decide whether goods received or shipped on count day belong to this period, and apply that one rule to both your counts and your purchase records. A count taken before a delivery is posted, or a purchase posted before its goods reach the shelf, throws off every later figure. Write the cutoff rule on the count sheet so the person counting and the person costing work from the same assumption.
Walk the shelves in a fixed order and record each item in its counting unit as you go. Counting the same way each time makes this period easy to compare with the last one. It also lets a colleague check your figures without asking which unit you meant. If a supplier changes its pack size partway through the period, note the date beside the item. Purchases on either side of that date will carry different unit costs for what looks like the same product.
2. Total the units available for sale
Units available for sale is the number you held at the start of the period plus everything you received during it. The count is not part of this figure. The count shows what is left, and the available total is the base from which you work out what left the shelves. Your opening units should match the closing count from the last period. If they do not, resolve that first, because it affects every figure after it.
The textbook example makes this concrete. There were 585 units available for sale during the period, and 285 of them remained in inventory at period end ( OpenStax, periodic method). The count gives you the units on hand. Subtracting that from the units available gives the units that left the shelves, so the count drives two figures at once.
Reconcile the two sides before you go on. Units counted plus units sold, taken from your sales records, plus recorded losses should equal units available. If they do not, look for the gap. Common sources are a miscount, breakage or theft, supplier returns that were never recorded, and a receiving line entered twice. Breakage and theft are real losses rather than errors, but they still need recording so the reconciliation closes. For the count checks, see physical inventory reconciliation.
Returns run in both directions. Goods sent back to a supplier reduce the units you had available. Goods a customer returns change the sales side of the reconciliation. Either way, the units in the reconciliation have to describe the same physical stock as the count.
Sales records need the same care. If your point-of-sale system records a sale in cases while the count is in singles, convert the sales figure before you reconcile. A mixed-unit reconciliation will fail for reasons that have nothing to do with the stock, and you will end up chasing a gap that does not exist.
Why be so strict? The average in step 4 divides by this total. A wrong unit count changes the average itself, not just the ending value, and that moves the value of every unit still on the shelf.
3. Total the cost of goods available for sale
Next, add up the cost of those units. Start with the value of opening inventory and add the cost of purchases made during the period. In the textbook example, the total is $16,155. The OpenStax section 10.1 figure shows the same step: calculating goods available for sale before anything is subtracted for cost of goods sold.
Lay out the purchases as a list with the date, supplier, units, unit cost, line total, and running total. Each line's total should equal units times unit cost, and the final running total should match the figure you carry into step 4. If a line does not multiply out, check its units, unit cost, and arithmetic against the supplier's paperwork. Settle that with the supplier's paperwork rather than adjusting the figure to fit.
Check each purchase line against its source document. Take out supplier returns and credits. Make sure no purchase is counted twice, which happens when an invoice and a delivery record are both posted for one delivery. Use the cost you actually paid, not the current list price, unless your own cost policy says otherwise.
Decide before count day whether freight, duties, and handling belong in inventory cost under your accounting policy. Then apply that choice to every purchase in the period. A choice made for some deliveries and not others makes the cost total inconsistent, and the average drifts in a way that is hard to trace back to one invoice.
Keep the opening inventory figure in this list too, with a note that it comes from last period's closing valuation. That way the total traces from the start of the period to the count, and anyone reviewing the sheet can see where each part of the number came from.
Purchases that arrive near the end of the period need a closer look. If a delivery is invoiced in the period but the goods were not on the shelf at count time, the cutoff rule from step 1 decides whether its cost belongs in the total. Whatever you decide, the same decision must govern the units in step 2. Cost without units, or units without cost, breaks the average, so both lists should be made from the same cutoff date.
4. Divide to get the average unit cost
Divide the total cost from step 3 by the total units from step 2. In the textbook example, $16,155 divided by 585 units gives an average that OpenStax states as $27.62. The source is explicit about rounding: "In this case, the cost comes to $27.6154 but rounds up to the stated cost of $27.62." ( OpenStax, periodic method)
Decide how many decimal places you will carry before count day, and write that choice into your procedure. Carrying the full figure through the calculation and rounding at the end is the cleaner route, and it is easier to explain to anyone who checks your work. The textbook does something slightly different. It applies the rounded $27.62 to reach its ending value.
The gap is small in the textbook case, as the two figures below show.
| Average measure | Textbook value | How it is used |
|---|---|---|
| Unrounded average | $27.6154 | Full precision carried through the calculation |
| Rounded average | $27.62 | The stated cost the textbook applies to ending units |
The rounded average differs from the unrounded one by less than a cent for each unit. That is a small effect here, but it grows with volume.
A sanity check is useful at this point. A weighted average must fall between the lowest and highest unit cost you paid during the period, opening stock included. If your average sits outside that range, a total or a unit count is wrong, and you should find it before you continue. This property comes from how averages work, not from any particular accounting rule, so it catches arithmetic errors quickly.
Label the result clearly with the unit it applies to. A cost for a case and a cost for a single bottle use different units. The label also tells the next reader which denominator you used, which matters when the count and the cost sheet were prepared by different people.
Write the calculation in full on the sheet, with the cost total, the unit total, and the division on separate lines. When someone asks how the average was reached, the answer is then visible without rebuilding a formula. Keep the rounded and unrounded figures side by side, so the effect of the rounding choice stays visible.
5. Value the ending inventory and check cost of goods sold
Ending inventory value is counted units multiplied by the average cost. In the textbook example, 285 units at $27.62 gives a rounded ending inventory of $7,872 ( OpenStax, periodic method). The same chapter then subtracts that figure from the goods available: "Subtracting this ending inventory from the $16,155 total of goods available for sale leaves $8,283 in cost of goods sold this period."
Run the tie-out. Ending inventory plus cost of goods sold should equal the goods available total from step 3. In the example, $7,872 plus $8,283 is $16,155. If your sheet does not tie, one of the figures is wrong. Check the figure you changed most recently first, then work outward. Fix the difference before you post anything, because the ending value flows into cost of goods sold and into the opening stock of the next period.
The table below traces each textbook figure to the step where this post uses it.
| Textbook figure | Value | Where it is used |
|---|---|---|
| Units available for sale | 585 | Step 2 |
| Units on hand at period end | 285 | Steps 2 and 5 |
| Goods available for sale | $16,155 | Steps 3 and 4 |
| Average unit cost | $27.62 | Steps 4 and 5 |
| Ending inventory | $7,872 | Step 5 |
| Cost of goods sold | $8,283 | Step 5 |
The periodic approach has one consequence worth remembering. The cost of goods sold figure is not known until the count is done. That is why count day matters for the income side of the accounts as well as the stock side. Sales made during the period are costed at the period's average, not at a separate cost for each sale. For the next calculation, see cost of goods sold.
Before you close, compare the ending value with previous periods, if you have them. A large change in the average unit cost, with no change in your suppliers' prices, is a reason to check the figures in step 2 or step 3. Treat it as a prompt to look again at the inputs before the numbers leave your office, not as a verdict on the method.
Keep the count sheet, the purchase list, and this calculation together as one workpaper. When the next count comes round, the opening figures come from this file. A clean workpaper makes the next period easier, and it gives anyone who reviews the numbers a path from each total back to its source documents.
The rules for inventory valuation depend on your accounting framework and on where you operate. Nothing in this post settles which method you must use, or how you must treat freight, returns, or rounding in your own accounts. For those answers, check your framework and talk to your accountant or tax adviser before you close the period.