Average-Cost Method

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.

BREAKING DOWN '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.

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