Weighted Average Cost (WAC) is an inventory valuation method where the cost of goods sold (COGS) is determined by averaging the cost of all items in inventory. For ecommerce businesses, WAC is calculated by dividing the total cost of goods available for sale by the total number of units available. This method smooths out fluctuations in inventory costs, making it easier for businesses to track expenses over time and easing ecommerce inventory management and accounting.
For ecommerce businesses, WAC is useful when inventory items are similar or interchangeable, as it provides a consistent measure of cost per unit. Unlike FIFO or LIFO, which depend on the timing of inventory purchases, WAC gives a more straightforward approach to managing inventory costs. However, it may not accurately reflect the actual flow of goods, especially when inventory prices fluctuate significantly.
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