Definition – What is average cost?
Average cost is the average cost per unit produced. It is a measurement of how much each item costs to produce.
Formula – How to calculate average cost
Average Cost = Total Cost ÷ Quantity
A company has a total cost of $400,000 and creates 400 units.
Average Cost = $400,000 / 400 = $1,000
Therefore, the average cost is $1,000 per unit.