The weighted average method of inventory valuation: periodic and moving average, worked through
Weighted average cost = total cost of the units available ÷ the number of units available. The periodic method works it out once for the whole period; the moving (perpetual) method works it out again after every delivery. IAS 2 allows either (IAS 2.27). In the example below the same month gives cost of goods sold of $3,795 periodic and $3,774 moving; both end with 70 units, valued at $805 and $826.
The calculator
Enter what you held at the start, then each delivery and sale in date order.
The periodic weighted average
Average = (opening cost + cost of all deliveries) ÷ (opening units + units delivered)
COGS = units sold × average
Ending = units left × averageOne average for the whole period, worked out at its end. Every unit sold in the period carries the same cost, including units sold before the dearer deliveries arrived.
The moving (perpetual) weighted average
After each delivery:
New average = (units on hand × current average + units received × price paid)
÷ (units on hand + units received)
Each sale is costed at the average on the day of the sale.The average changes only when stock arrives. A sale never changes it; it only takes units out at the current average.
The same month, both ways
| Step | Units | Price paid | Moving average after | On hand |
|---|---|---|---|---|
| Opening stock | 100 | $10.00 | $10.00 | 100 |
| Delivery | 200 | $11.50 | $11.00 | 300 |
| Sale | 150 | $11.00 | 150 | |
| Delivery | 100 | $13.00 | $11.80 | 250 |
| Sale | 180 | $11.80 | 70 |
| Result | Periodic | Moving |
|---|---|---|
| Average used | $11.50 for all sales | $11.00, then $11.80 |
| Cost of goods sold (330 units) | $3,795.00 | $3,774.00 |
| Ending inventory (70 units) | $805.00 | $826.00 |
When prices rise during the period, the periodic method puts more of the rise into the units already sold; the moving method keeps more of it in the stock still on the shelf.
Which one to use
- Both are allowed under IAS 2. Interchangeable goods are costed by FIFO or weighted average, applied consistently (IAS 2.25), and the average can be worked out periodically or on each delivery (IAS 2.27; IFRS Community). Your accountant decides which applies to your books.
- The periodic method suits a business that values stock once at period end, from a count.
- The moving method gives a cost at the moment of every sale. That is what an online store needs: Shopify records the cost on each order when it is placed (Shopify Help), so the cost has to be right on the day, not at month-end.
Cases the moving average must handle
- Sold below zero. If more units were sold than you held, there is nothing to average with when the next delivery arrives; its price becomes the average.
- Stock with no cost on record. A zero is not a price; averaging with $0 would drag the cost down.
- Freight and duty. The price paid should include each unit's share: see the landed cost calculator.
What Shopify and True COGS do
Shopify keeps one Cost per item per variant: “This cost stays fixed when you receive a purchase order or transfer.” (Shopify Help). True COGS keeps the moving weighted average: each delivery is averaged with the stock on hand when it arrives, and the result is written to Cost per item, with every price kept and dated. FIFO is available on paid plans.
Related guides
Questions merchants ask
What is the weighted average method of inventory valuation?
Each unit is valued at the average cost of the units available: total cost divided by total units. Sold units go to cost of goods sold at that average, and units left are valued at it.
Periodic or perpetual weighted average: which is right?
Both are allowed under IAS 2. The periodic method uses one average for the period; the perpetual (moving) method recalculates after every delivery and gives a cost at each sale.
How is ending inventory valued under weighted average?
Units left times the average. In the example, 70 units are worth $805.00 at the periodic average of $11.50 and $826.00 at the moving average of $11.80.
Is weighted average cost allowed under IFRS?
Yes. IAS 2 allows FIFO or weighted average for interchangeable goods. LIFO is not allowed under IFRS.
Does Shopify use weighted average cost?
No. Shopify keeps one Cost per item for each variant, and it stays fixed when you receive a purchase order or transfer. An app or a manual calculation keeps it at the average.
What is the weighted average inventory costing method in one formula?
Weighted average cost = cost of goods available for sale ÷ units available for sale. Ending inventory = units left × that average, and cost of goods sold = units sold × that average. The moving (perpetual) version works the average out again after every delivery.
Try True COGS free. True COGS is an inventory costing app for Shopify by Nexus Logic Systems. It records the price you paid on every delivery (a received purchase order or a transfer), with its share of freight and duty on paid plans, keeps every price with its date, and writes your moving weighted average cost, or FIFO cost on a paid plan, to Shopify's Cost per item. It is free for up to 25 variants with a cost on record; paid plans start at $29 a month or $290 a year.
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