What is the weighted average price?

The concept of weighted average price refers to a valuation method widely used in accounting to measure the stocks that a company has. In order to obtain this information, a calculation must be made of the average value of the stocks that were at the beginning and of the entries weighted according to the quantities.

How to calculate the weighted average price?

The weighted average price (PMP) formula is very simple. Each price must be multiplied by the number of units of that price. The result of these multiplications is added and the amount obtained is divided by the sum of all the units.

The result will be the weighted average price, which will have to be multiplied by the number of total units to get the value of the stocks.

To better understand the meaning of weighted average price we will use an example. A company dedicated to the textile sector has 1o pants with a price of 50 euros. In addition, it is also made with another 300 pants at 80 euros. This implies that the company has a stock of 1.300 garments, but the valuation price will vary and will be the weighted measure of the quantities detailed above.

The weighted average price formula will lead us to multiply the number of pants by their purchase price, that is, 1.000 x 50 and 300 x 80, to end up adding both and getting a result of 74.000.

Finally, 74.000 must be divided by the total number of pants in the warehouse, which is 1.300. The result, 56,9 is the weighted average price.

The weighted average price allows companies to have a benchmark when evaluating the outputs that arise until the moment in which a new entry of articles is made, at which time the operation will have to be repeated to get a new one. half price.

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