Average-Cost Method

AAA

DEFINITION of 'Average-Cost Method'

A costing method by which the value of a pool of assets or expenses is assumed to be equal to the average cost of the assets or expenses in the pool.

INVESTOPEDIA EXPLAINS 'Average-Cost Method'

For example, if one share of Company A's stock is purchased on June 1 for $50.00, again on June 15 for $35.00, and again on Aug 10 for $40.00, the average-cost method assumes that three stocks were purchased for an average cost of $41.67. This number is arrived at by adding $50.00 + $35.00 + $40.00 and dividing the sum by 3, because there are three stocks in the pool.

RELATED TERMS
  1. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  2. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  3. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  4. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  5. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets ...
  6. Specific-Shares Method

    A personal financial accounting method that, when used properly, ...
Related Articles
  1. Using Tax Lots: A Way To Minimize Taxes
    Taxes

    Using Tax Lots: A Way To Minimize Taxes

  2. Take Advantage Of Dollar-Cost Averaging
    Insurance

    Take Advantage Of Dollar-Cost Averaging

  3. Dollar-Cost Averaging Pays
    Retirement

    Dollar-Cost Averaging Pays

  4. How do you calculate retained earnings ...
    Fundamental Analysis

    How do you calculate retained earnings ...

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center