Weighted Average Price Calculator

Weighted Average Formula:

\[ \text{Weighted Average} = \frac{\sum (\text{price} \times \text{quantity})}{\sum \text{quantity}} \]

Weighted Average Price:

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1. What Is Weighted Average Price?

The weighted average price calculates the average price per unit when different quantities are purchased at different prices. It gives more weight to prices with higher quantities, providing a more accurate representation of the true average cost.

2. How Does The Calculator Work?

The calculator uses the weighted average formula:

\[ \text{Weighted Average} = \frac{\sum (\text{price} \times \text{quantity})}{\sum \text{quantity}} \]

Where:

$ \text{price} $ — Individual price per unit ($)
$ \text{quantity} $ — Number of units purchased at that price
$ \sum $ — Summation of all values

Explanation: The formula calculates the total value of all purchases divided by the total quantity, giving more influence to prices with larger quantities.

3. Importance Of Weighted Average Calculation

Details: Weighted average pricing is essential in inventory management, cost accounting, investment analysis, and financial reporting. It provides a more accurate measure of average cost than a simple arithmetic mean when dealing with varying quantities.

4. Using The Calculator

Tips: Enter prices in dollars and quantities in units. Separate multiple values with commas. Ensure you have the same number of price and quantity values. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between weighted average and simple average?
A: Simple average treats all prices equally, while weighted average gives more importance to prices with higher quantities, providing a more accurate cost representation.

Q2: When should I use weighted average pricing?
A: Use it when you've purchased the same item at different prices and quantities, and need to determine the true average cost per unit.

Q3: Can I use this for stock portfolio calculations?
A: Yes, weighted average is commonly used to calculate the average purchase price of stocks bought at different prices and quantities.

Q4: What if I have different numbers of prices and quantities?
A: The calculator requires matching numbers of prices and quantities. If they don't match, it will not calculate the result.

Q5: How does this relate to inventory valuation methods?
A: The weighted average method is one of the primary inventory valuation techniques under both GAAP and IFRS accounting standards.