How does Xero determine the average cost of tracked inventory?

Xero determines the average cost of tracked inventory by dividing the total value of the inventory by the total number of units available for sale. This method provides a clear and accurate representation of the inventory cost, allowing businesses to understand their average expense per unit as they sell and restock items. This calculation is essential for maintaining accurate financial records and making informed business decisions regarding pricing and stock levels.

Using total value ensures that fluctuations in purchase prices over time are accounted for, thereby giving a more comprehensive view of inventory costs rather than relying on a snapshot of the last purchase price or a limited number of transactions. This approach is effective for businesses that manage their inventory on an average cost basis, supporting better financial planning and analysis.