You can calculate the weighted average of a set of numbers by multiplying each value in the set by its weight, then adding up the products.įor a more in-depth explanation of the weighted average formula above, follow these steps:ġ. Weighted average differs from finding the normal average of a data set because the total reflects that some pieces of the data hold more “weight,” or more significance, than others or occur more frequently. Using the units as the weight and the total number of units as the sum of all weights, we arrive at this calculation: Other costing methods include last in, first out and first in, first out, or LIFO and FIFO respectively.Ī manufacturer purchases 20,000 units of a product at $1 each, 15,000 at $1.15 each and 5,000 at $2 each. This number goes into the calculation for the cost of goods sold. In some industries where quantities are mixed or too numerous to count, the weighted average method is useful. Weighted average is one means by which accountants calculate the costs of items. It is an important tool in accounting for stock fluctuations, uneven or misrepresented data and ensuring similar data points are equal in the proportion represented. Weighted averages are commonly used in statistical analysis, stock portfolios and teacher grading averages. What is weighted average?Ī weighted average is the average of a data set that recognizes certain numbers as more important than others.
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In this article, we explore how to calculate weighted average using two methods. The accuracy of the numbers you arrive at with this method is determined by the weight you give specific variables in the data set. A weighted average helps the user gather a more accurate look at a set of data than the normal average alone. The weighted average method is a tool used in classrooms, statistical analysis and accounting offices, among others.
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