What is average cost?

Point of Sale (POS) Glossary

In point of sale systems, average cost refers to the amount a merchant paid for all of their current stock of an item, divided by the number of that item they currently have in inventory. For instance, a vendor might have originally charged $20 for 10 widgets ($2 each). On a reorder, they raised the price to $30 for 10 ($3 each). In this example, the total price was $50 or an average of $2.50 each. If the merchant still had all 20 items in stock, the average cost would be $2.50.

Average cost calculation can be more complicated than the example above. There may be complexity, such as multiple prices, returned items, shipping, and the number of remaining items in stock. A POS system may offer options to capture different considerations when calculating this value.”