Refers to the average amount that has been paid for the items that are currently on hand. Average cost is determined by calculating or recalculating a weighted average of the cost of all inventory items currently in stock. This cost is recalculated each time items are added to the inventory, and in certain situations, when items are removed from inventory. Prices for inventory items vary, so average cost gives a retailer an indication of the cost of a given item over time.

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