Which inventory costing method calculates cost based on the average cost of all units available?

The inventory costing method that calculates cost from the average cost of all units available is weighted average cost.

The method divides the total cost of goods available for sale by the total number of units available. Goods available include beginning inventory plus purchases during the period. The resulting weighted-average unit cost is applied to both ending inventory and cost of goods sold.

For example, if a business has units purchased at different prices, weighted averaging blends those prices instead of assigning each sale to a particular purchase batch. This smooths the effect of price changes and avoids the sharp cost swings that can occur under FIFO or LIFO. It is especially useful when individual units are interchangeable.

In a periodic system, the average is calculated at the end of the accounting period. In a perpetual system, often called moving-average cost, the average is recalculated after each purchase. Specific identification differs because it tracks the actual cost of particular items, making it more suitable for unique or high-value goods.