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Average Cost

   Also found in: Dictionary/thesaurus, Medical, Wikipedia, Hutchinson 0.01 sec.
Average cost
In the context of investing, refers to the average cost of shares or stock bought at different prices over time.

Average Cost
1. A method of determining the value of securities in a tax year. One calculates the average cost by taking the total cost of buying shares in a security and dividing it by the number of shares one owns. The average-cost method is useful especially when the security has fluctuated significantly in price and when the investor has an automatic investment plan.

2. In inventory, a method to determine the value of one unit. It is calculated by dividing the total cost of buying the inventory by the units available for sale. See also: Inventory Valuation.

average cost
A cost amount calculated by dividing the total cost by the units of production. Thus, if a firm produces 10,000 units of output for a total cost of $25,000, the average cost of each unit is $25,000/10,000 units, or $2.50 per unit. Average cost is made up of costs remaining unchanged throughout a range of output and costs varying directly with output. Firms with the lowest average cost in an industry have a competitive advantage in the event of severe competition and price cutting.


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