This guide will cover how to calculate WAC, compare it to other valuation methods, and explain how optimizing inventory management can improve business profitability.
For e-commerce businesses, understanding inventory valuation is crucial for tracking costs, managing profit margins, and meeting revenue goals. Choosing the right inventory tracking method allows for better forecasting and optimization of stock levels. Among the various inventory valuation techniques, Weighted Average Cost (WAC) is a popular method that simplifies inventory accounting while maintaining accuracy.
Inventory Weighted Average Cost (WAC) is one of the four most commonly used inventory valuation methods in e-commerce accounting. It calculates an average unit cost based on total inventory costs and quantities available.
The WAC method is widely accepted under both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). However, it requires accurate inventory records and regular calculations to ensure precise financial reporting.
The Weighted Average Cost method is ideal in the following situations:
· When inventory items are identical, making it difficult to assign individual unit costs.
· When inventory turnover is high, requiring frequent purchases and replenishments.
· When tracking specific inventory purchase dates is complex.
The WAC method involves dividing the total cost of goods available for sale by the total number of units available for sale during a given period.
Each unit in stock is now valued at $5.42 under WAC.
The method used to track inventory (Periodic or Perpetual) affects how WAC is calculated.
Inventory and COGS are updated at the end of an accounting period.
Suitable for businesses with low inventory movement.
A skincare company follows quarterly reporting. At the start of the quarter, they had 150 units valued at $8 each ($1,200). During the quarter, they made the following purchases:
· 300 units at $8.50 ($2,550)
· 220 units at $9.00 ($1,980)
· 150 units at $9.50 ($1,425)
At the end of the quarter:
Each unit is valued at $8.72 under the periodic WAC system.
· Inventory and COGS are updated after each sale or purchase.
· More accurate but requires real-time inventory tracking software.
Using the same example, WAC would be recalculated after each transaction, leading to multiple WAC adjustments throughout the period.
Unlike FIFO and LIFO, which assign different costs based on purchase date, WAC smooths out cost fluctuations, making calculations easier.
Since every item is valued the same, businesses do not need to maintain complex purchase records.
WAC simplifies financial reporting and forecasting, reducing the likelihood of miscalculations that can lead to over-purchasing or stockouts.
Using the WAC method improves inventory accounting, but scaling a business requires efficient inventory and fulfillment management. Without a streamlined process, handling inventory at scale can become complex.
Daguer Logistics provides e-commerce brands with a robust fulfillment and inventory management solution, allowing them to focus on growth while we handle the logistics.
Daguer Logistics offers a centralized dashboard for businesses to track inventory across multiple warehouses. Key features include:
· Real-time SKU tracking
· Automated stock alerts
· Inventory forecasting tools
Our fulfillment experts handle daily operations, including:
· Picking and packing orders with precision
· Custom kitting & assembly services
· Branded packaging solutions
Scaling an e-commerce business requires a strategic warehouse network to reduce shipping times and costs. With Daguer Logistics' fulfillment centers across the U.S., Canada, and globally, businesses can:
· Store inventory closer to customers
· Optimize shipping routes for faster delivery
· Minimize logistics costs
Seamlessly manage inventory across multiple sales channels, including:
· Shopify, Amazon, eBay, Walmart Marketplace
· Retail & wholesale distribution
With global fulfillment centers, brands can scale internationally with:
· Localized warehousing to avoid cross-border delays
· Customs compliance management
Weighted Average Cost (WAC) is an effective method for inventory valuation, simplifying financial tracking and reducing cost fluctuations. However, managing inventory at scale requires real-time tracking, efficient logistics, and strategic warehousing.
By partnering with Daguer Logistics, e-commerce brands can optimize inventory management, reduce logistics costs, and scale globally while focusing on growth and customer satisfaction.
WAC should be calculated based on your accounting system, either periodically (end of an accounting period) or perpetually (after each transaction).
WAC provides a balanced approach to inventory valuation. FIFO is better for businesses that experience rising costs, while LIFO can help reduce tax liabilities in inflationary markets.
E-commerce retailers with high inventory turnover and those dealing with identical products benefit the most from WAC.
Yes. Daguer Logistics provides real-time inventory tracking, making it easier to apply WAC, FIFO, or LIFO methods.
Yes. WAC can be applied under both inventory tracking methods, though calculations vary slightly.
