How are ending inventory units valued in Average Cost inventory method?

In the Average Cost inventory method, the ending inventory units are valued by averaging the total cost of goods available for sale. This approach calculates a weighted average cost for all inventory items, allowing a business to spread out costs more evenly across its inventory.

To find the average cost, the total cost of all items available for sale is divided by the total number of units available, resulting in a single average cost per unit. This average is then used to value both the ending inventory and the cost of goods sold, regardless of when the items were purchased.

This method smooths out price fluctuations over the accounting period, making it particularly useful in industries where inventory costs may vary significantly but need to be managed cohesively for financial reporting.