- 21
- April
What Is WMA (Weighted Moving Average)? — The Inventory Costing Method Explained
When discussing inventory costing, accountants and ERP users frequently encounter the term WMA or Weighted Moving Average. It is one of the most popular costing methods in Thai ERP systems because it is simple, fair, and compliant with TAS 2 accounting standards. This article explains the definition, formula, and provides a step-by-step calculation example.
Quick Summary: WMA (Weighted Moving Average) is an inventory costing method that recalculates a new average cost every time goods are received, using the formula (Old Total Cost + New Purchase Cost) ÷ Total Quantity. As a result, every unit in stock carries the same average cost until the next purchase arrives.
What Is WMA?
WMA (Weighted Moving Average) is an inventory costing method in which all units in stock share a single average cost. The average is recalculated every time new stock is received (Goods Receipt). This differs from FIFO (First-In First-Out), which assigns cost based on the order in which units were purchased.
The word "Moving" means the average changes continuously with each new receipt, while "Weighted" means the average is weighted by quantity, not just the per-unit price.
The WMA Formula
When goods are sold or issued, the cost recorded in COGS (Cost of Goods Sold) is the latest average cost multiplied by the quantity sold — no need to track which lot the units came from.
Step-by-Step WMA Calculation Example
Suppose a construction-materials store has the following cement transactions:
| Date | Transaction | Qty (bags) | Price/bag (THB) | Balance (bags) | Avg Cost (THB/bag) |
|---|---|---|---|---|---|
| Apr 1 | Opening | 100 | 150 | 100 | 150.00 |
| Apr 5 | Purchase | 50 | 180 | 150 | 160.00 |
| Apr 10 | Sale | 80 | (use 160) | 70 | 160.00 |
| Apr 15 | Purchase | 30 | 200 | 100 | 172.00 |
| Apr 20 | Sale | 40 | (use 172) | 60 | 172.00 |
Calculation steps:
- Apr 5 (Purchase 50 bags @ 180): Total cost = (100 × 150) + (50 × 180) = 15,000 + 9,000 = 24,000 THB ÷ 150 bags = 160 THB/bag
- Apr 10 (Sale 80 bags): COGS = 80 × 160 = 12,800 THB; balance = 70 bags × 160 = 11,200 THB
- Apr 15 (Purchase 30 bags @ 200): Total cost = 11,200 + (30 × 200) = 11,200 + 6,000 = 17,200 THB ÷ 100 bags = 172 THB/bag
- Apr 20 (Sale 40 bags): COGS = 40 × 172 = 6,880 THB; balance = 60 bags × 172 = 10,320 THB
WMA vs FIFO vs Specific Identification
There are three main inventory costing methods accepted under TAS 2 (LIFO is no longer permitted in Thailand):
| Aspect | WMA (Weighted Moving Average) | FIFO (First-In First-Out) | Specific Identification |
|---|---|---|---|
| Principle | Recalculate average cost on each receipt | First units in are first units out | Identify the specific cost of each item |
| Complexity | Moderate — only recompute the average | High — must track each lot | Very high — must track each unit |
| Best For | Mixable goods such as oil, chemicals, cement | Goods with expiry dates or batch tracking | High-value items such as cars or diamonds |
| Inflation Effect | Balanced, moderate profit | Higher profit (older costs are cheaper) | Depends on items actually sold |
| ERP Adoption | Most popular — supported by Saeree ERP | Second most popular | Used by niche businesses |
Pros and Cons of WMA
| Pros | Cons |
|---|---|
| Easy to calculate; ERP automates it | Doesn't reflect the latest market cost as quickly as FIFO |
| Reduces the impact of purchase-price volatility | If prices fluctuate sharply, profits look "smoothed" beyond reality |
| Suitable for goods that physically mix in the warehouse | Not suitable for goods that need lot or expiry tracking |
| Compliant with TAS 2 and NPAEs | Harder to audit retrospectively than FIFO's clear lot trail |
Which Businesses Are Best Suited to WMA?
- Oil and fuel businesses — fuel from different shipments mixes in the same tank, making averaging the natural choice (read more: Oil Crisis and Cost Management)
- Chemicals and liquid raw materials — liquids that blend in shared tanks; WMA is the standard
- Construction materials — cement, stone, sand piled together in the warehouse
- Industrial parts — bolts, screws, consumables counted by piece but not separated by lot
- Some processed-food businesses — flour, sugar stored in shared silos
WMA in Saeree ERP
Saeree ERP supports WMA costing as the default. It runs automatically on every Goods Receipt entry and updates the weighted average instantly. Users do not need to compute anything manually — Stock Movement and COGS reports always reflect the latest average.
Saeree ERP also lets you configure costing methods per product category. For example, general items can use WMA while items requiring lot or expiry tracking (such as pharmaceuticals or food) can use FIFO — covering every business scenario within the same organization.
