Legal Definitions - average cost

Definition: The sum of the costs of beginning inventory costs and the costs of later additions divided by the total number of available units.

Example: A company produces 100 units of a product. The cost of producing the first 50 units is $5000, and the cost of producing the next 50 units is $5500. The average cost of producing each unit is ($5000 + $5500) / 100 = $105.

This means that on average, the company spent $105 to produce each unit of the product. The example illustrates how the average cost is calculated by adding the costs of beginning inventory and later additions and dividing by the total number of units produced.