Weighted average cost
WAC
Weighted average cost values stock at the average cost of all units on hand, recalculated each time new stock is received, rather than tracking the cost of each individual batch.
If you hold 100 kg bought at ₹200 and receive 100 kg at ₹240, your weighted average cost becomes ₹220 and every unit is valued at that until the next receipt. It is simpler than FIFO, it smooths price volatility, and for fungible goods where one unit is indistinguishable from another it reflects reality well enough.
What it hides is the tail. When input prices are rising, WAC reports a cost below your replacement cost, so a sale that looks profitable against the average may not cover buying the stock again. In a volatile market that gap is where margins quietly disappear.
A refinement worth making is to uplift the average by known losses. Stock that was damaged or lost still cost money, and spreading that cost across the units you can actually sell gives an effective cost that is closer to the truth than the purchase average.
Key facts
- Recalculated on each receipt: (existing value + new value) ÷ (existing quantity + new quantity).
- Simpler than FIFO and does not require batch-level cost tracking.
- Understates replacement cost in a rising market.
- Damage and shrinkage should be loaded onto saleable units to give an effective cost.
- A selling-price floor is usually set at effective cost plus a fixed percentage.
Who this affects
Any business holding stock of fungible goods.
How YarnTally handles it
Per-SKU weighted average cost is computed and then uplifted by damage value per unit on hand to give an effective cost, from which a suggested floor and target price are derived and shown while you are typing a price.
See what else it doesReviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.