The weighted average cost in this system is referred to as the moving average cost method. Firstly the fixed cost of production is collected from the profit and loss account. Please note that according to the formula above AFC always decreases as the level of output increases and vice.
The formula is the average fixed cost per unit plus the average variable cost per unit multiplied by the number of units.
This last step is required because we are trying to find the average fixed cost ie the fixed cost per unit. The formula to calculate the average cost is given here. This number is also known as average total cost or unit cost. Average cost Total cost of the unitsNumber of units The average cost deals with the summation of arithmetic cost divided by the number of the quantity or the number of items given.