Average cost method

Average cost method is that method in which we do not apply FIFO and LIFO but we calculate all purchased materials' average and material's issue will be done on this average price.
The average cost is computed by dividing the total cost of goods available for production by the total units available for production. This gives a weighted-average unit cost that is applied to the units in the ending inventory.

There are  commonly used average cost methods: Simple average, Weighted-average cost method and moving-average cost method.