$$Weighted Average Cost Method

Description: The Weighted Average Cost $($WAC$)$ method calculates the cost of inventory by taking the total cost of goods available for sale and dividing it by the total units available. This method assigns an average cost to each unit sold and each unit remaining in inventory, making it suitable for companies where inventory items are indistinguishable from each other or when prices fluctuate frequently.

Formula:

Weighted$$Average$$Cost$$per$$Unit$=$Total$$Cost$$of$$InventoryTotal$$Units$$AvailableWeighted$$Average$$Cost$$per$$Unit$=$Total$$Units$$AvailableTotal$$Cost$$of$$Inventory$$

Example: If a business purchases $100$ units at R$10$ each and $200$ units at R$12$ each, the WAC per unit would be$(10010)+(20012)100+200=$R$11\mathrm{.}33100+200(10010)+(20012)=$R$11\mathrm{.}33.$

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$$FIFO $($First$-$In$,$ First$-$Out$)$ Method

Description: The FIFO method assumes that the first units purchased are the first ones sold. This means that the cost of the earliest inventory items is assigned to the cost of goods sold, while the most recent costs remain in inventory. FIFO is commonly used when inventory items are perishable or have expiration dates, as it matches the flow of goods in many businesses.

Example: If a company bought $100$ units at R$10$ and then $100$ units at R$12,$ under FIFO, the cost of the first $100$ units sold would be R$10$ each.