Calculate Ending Inventory Using the Periodic Average Cost Method

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Reviewed by: David Chen, CFA

This calculator and accompanying financial content are reviewed by a certified financial analyst to ensure accuracy and educational value.

Use this tool to determine the cost of your ending inventory and the Cost of Goods Sold (COGS) for a specific period using the Periodic Average Cost (WAC) method. This method averages the cost of all inventory purchased during the period, including the beginning inventory.

Calculate Ending Inventory using the Periodic Average Cost Method

Calculated Ending Inventory Cost

$0.00

Calculation Steps

Periodic Average Cost Method Formula

Step 1: Calculate Cost of Goods Available for Sale (COGAS)

$$ \text{COGAS} = \text{Beginning Inventory Cost} + \text{Purchases Cost} $$

Step 2: Calculate Average Cost Per Unit (ACPU)

$$ \text{ACPU} = \frac{\text{COGAS}}{\text{Beginning Units} + \text{Purchase Units}} $$

Step 3: Calculate Ending Inventory Cost

$$ \text{Ending Inventory} = \text{ACPU} \times \text{Ending Inventory Units} $$

Step 4: Calculate Cost of Goods Sold (COGS)

$$ \text{COGS} = \text{COGAS} – \text{Ending Inventory} $$

Formula Source: Investopedia – Average Cost Method, AccountingCoach – Periodic System

Variables Explained

The calculator requires the following five key variables:

  • Beginning Inventory Units: The number of units physically on hand at the start of the accounting period.
  • Beginning Inventory Cost ($): The total cost associated with the beginning inventory units.
  • Total Purchase Units During Period: The total number of units acquired (purchased) during the accounting period.
  • Total Purchase Cost During Period ($): The total monetary cost of all purchases made during the period.
  • Ending Inventory Units (Physical Count): The number of units physically counted on hand at the end of the accounting period.

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What is the Periodic Average Cost Method?

The Periodic Average Cost Method, also known as the Weighted-Average Cost (WAC) method, is one of the generally accepted inventory valuation techniques (alongside FIFO and LIFO). It calculates the total cost of all units available for sale—both those in beginning inventory and those purchased during the period—and then divides that total by the total number of units available. This produces a single, weighted-average cost per unit.

This average cost is then applied to the units remaining in inventory (ending inventory) and the units sold (cost of goods sold). The key feature of the periodic system is that it does not track costs immediately after every sale or purchase; instead, it waits until the end of the accounting period to perform a physical count of the ending inventory and then applies the calculated average cost to that final count.

How to Calculate Ending Inventory (Example)

Assume the following data for the month of January:

  • Beginning Inventory: 100 units at $10 each. (Total Cost: $1,000)
  • Purchases: 400 units at $12 each. (Total Cost: $4,800)
  • Ending Inventory Count: 50 units remaining.
  1. Calculate Cost of Goods Available for Sale (COGAS):
    $1,000 (Beginning Cost) + $4,800 (Purchase Cost) = $5,800
  2. Calculate Total Units Available for Sale:
    100 units (Beginning) + 400 units (Purchases) = 500 units
  3. Calculate Average Cost Per Unit (ACPU):
    $5,800 (COGAS) / 500 units (Total Units) = $11.60 per unit
  4. Calculate Ending Inventory Cost:
    $11.60 (ACPU) × 50 units (Ending Count) = $580.00
  5. Calculate Cost of Goods Sold (COGS) (Optional but related):
    $5,800 (COGAS) – $580 (Ending Inventory) = $5,220.00

Frequently Asked Questions (FAQ)

  • What is the main difference between periodic and perpetual inventory systems?
    The perpetual system continuously updates inventory records after every sale and purchase, providing real-time balances. The periodic system only updates records at the end of a period, requiring a physical count to determine ending inventory.
  • When is the Average Cost Method typically used?
    It is best suited for businesses that sell high volumes of identical, non-distinguishable goods, such as fuel, grains, or bulk chemicals, where tracking the cost of specific units (like with FIFO or LIFO) is impractical.
  • Does the Average Cost Method usually result in a higher or lower Net Income than FIFO or LIFO?
    In periods of consistently rising costs (inflation), the average cost method generally results in a Net Income that falls between FIFO (highest Net Income) and LIFO (lowest Net Income). This is because it smooths out cost fluctuations.
  • Can I use this method for both units and cost tracking?
    The average cost method is used to determine the monetary value of inventory and COGS. However, its application within a *periodic* system means you only need to track units and costs in total for the period, unlike the perpetual system.
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