# average-cost method

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## Average-Cost Method

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 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 method

1. A method of determining the value of an inventory by calculating unit cost, that is, the result obtained by dividing the total cost of goods available for sale by the number of units available for sale. See also inventory valuation.
2. A method of valuing the cost basis of securities that are sold in order to determine the gain or loss for tax purposes. Average cost is calculated as total cost of shares owned divided by the number of shares owned. The average-cost method is particularly useful for shares acquired at varying prices in a reinvestment plan.
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For most entities, this decision comes down to one of three choices: the average cost method, the FIFO (first-in, first-out) method, and the LIFO (last-in, last out) method.
The average cost method is only available to sellers of mutual funds (as discussed later in this chapter).
The average cost method assigns per capita cost per employee (in other forms of fiscal impact analyses, the average costs can be assigned per resident or student).
Average Cost method is the compromise between FIFO and LIFO methods.
19, 2006 continents, the AICPA proposed that the IRS and Treasury should allow the use of the rolling average cost method in valuing inventories when this method approximates actual cost.
The taxpayer may determine the amount of the deduction by using either a specific identification method, a first in, first out (FIFO) method, or an average cost method. The method must be used consistently.
With this method, the oldest shares you hold (first in) are those considered sold first (first out.) The second method is called the single average cost method, whereby the average cost of all shares becomes the cost basis for any shares sold.
Our results show, in accordance with a previous study , that the average cost method overstates the cost of a hip fracture by 23% for acute care (when mean length of stay is used) and as much as 92% for rehabilitation.
Note: The average cost method is not a permitted method.
Average cost method. If mutual fund shares are held by a custodian, which normally is the case, the investor can elect to use an average cost method to compute basis.
[] Substantially identical securities determined on average basis: Under this proposal, taxpayers generally would be required to determine their basis in substantially identical securities using the average cost method. Thus, for example, if a taxpayer holds 100 shares of stock in XYZ, 50 purchased for \$25 and 50 purchased for \$50, the taxpayer's average basis in each share of XYZ stock would be \$37.50 [((50 X \$25) + (50 X \$50))/100].
While some funds will provide the taxpayer with basis information using one of the average cost methods, it may not be in the taxpayer's best interest to use such methods.

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