average-cost method

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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