Dears,
Can anyone please explain the difference between
Moving Average and Weighted Average Costing Methods with example?
I take it this is a general question since SBO does not support weighted average (atleast as far as I know)? Also, weighted average is not allowed to use in every country, so check your accounting standards and laws.
Moving average is calculated after every transaction, and the calculation only takes current inventory status into consideration. Weighted average is calculated for all purchases in a given time period.
Example for buying item A:
1. You buy 10 units at $10 per unit. Total $100.
2. You sell 4 units. Cost of goods sold is $10 per unit, so you have 6 unit left with total value $60.
3. You buy another 10 units at $20 per unit, total cost $200.
Now, after the second purchase, value per item unit is calculated as follows:
Moving average - (6x10+10x20) / 16 = 16,25 (calculation is based on current inventory status and value)
Weighted average - (10*10+10x20) / 20 = 15 (calculation is based on all purchases in a given period)