# Average Cost Method

## What is the average cost method and how does it work

The average cost method is a technique used to value inventory. It assigns a cost to each unit of inventory based on the average cost of all units purchased during the period. To calculate the average cost, you first need to determine the total cost of all units purchased. This includes the purchase price, freight charges, and any other associated costs. Once you have determined the total cost, you simply divide this amount by the number of units purchased. The resulting figure is the average cost per unit. Under the average cost method, this figure is then used to value all units of inventory on hand, regardless of when they were actually purchased. As a result, it can provide a more accurate picture of inventory value than methods that use historical costs. However, it can also be more difficult to calculate, and it may not reflect changes in market conditions as accurately as some other methods.

## How to calculate average cost using Excel

When it comes to calculating averages, Excel is a powerful tool that can save you a lot of time and effort. There are a few different ways to calculate an average in Excel, but the most straightforward method is to use the AVERAGE function. This function takes a range of cells as its argument and returns the average of all the values in that range. For example, if you have a column of numbers in cells A1 through A5, you can use the following formula to calculate the average: =AVERAGE(A1:A5).

Another way to calculate an average in Excel is by using the SUM function. This function adds up all the values in a given range, so you can then divide by the number of cells in that range to get the average. For example, if you have a column of numbers in cells A1 through A5, you can use the following formula to calculate the average: =SUM(A1:A5)/5.

Whichever method you choose, Excel can be a valuable tool for quickly calculating averages.