This refers to the inventory stock costing method.
This assumes that stock used will be valued at an average cost. The AVCO is derived by taking the total value of the stock (irrespective of the order in which it was purchased) and dividing it by the total units in stock thus finding the average price per unit. AVCO may be used where stocks of non perishable materials (such as coal) are topped up when new deliveries are received.
The AVCO (average cost or weighted average) method is a term normally found in management accounting.
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