Average Cost of Goods Sold: What is it?

Hello, today's topic is all about "average cost of goods sold." For some of you, this may be the first time you've heard this term, and it may seem a bit daunting. But don't worry. In today's post, we're going to demystify what 'average cost of goods sold' is and why it's important.

What is average cost of goods sold?

When you buy a stock or commodity over a number of purchases, the average cost per unit is the total amount you paid for it divided by the total number of units you purchased. In other words, it's a value that represents how much you paid on average for all of your purchases lumped together.

Why do you need to know average cost of goods sold?

There are two main reasons to know your average cost of goods sold.

First, knowing the average cost of goods sold makes it easier to determine your current profit or loss rate. For example, if your average unit cost is 1000 KRW and the current market price is 1200 KRW, your profit margin is 20%. Conversely, if the market price is 800 won, the loss rate is 20%.

Second, knowing your average unit price can help you decide at what price to buy more and at what price to sell. For example, if the price of a product with an average unit cost of 1000 won drops to 800 won, you can buy more to lower the average unit cost.

How to calculate average cost of goods sold?

Calculating the average cost of goods sold is simple.

1. multiply the purchase price and quantity at the time of each purchase.
2. Add the results together.
3. Then divide by the total number of units purchased.

Finalize

The average unit cost is an important concept when buying stocks or commodities. Understanding and utilizing it can help you easily determine your current profit or loss rate and help you decide whether to buy more or sell more. We hope this article has helped you learn a little bit more about the average unit price, and that it will help you in your investing.

In our next article, we'll discuss other important investing concepts. Until then, happy investing!

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