Average cost (AVCO) valuation in Zoho Inventory calculates a weighted average cost per unit each time new stock is received. When items are sold, this moving average cost is used as the cost of goods sold rather than the cost of a specific purchase batch.
Each new purchase receipt recalculates the average: (Current stock value + New purchase value) / (Current units + New units received). The new average applies to all subsequent sales until the next receipt changes it again.
Average cost is simpler to manage than FIFO and is the default in many Zoho Inventory setups. It works well for fungible goods where individual units are indistinguishable and purchase prices fluctuate moderately. It is less suited for items with high price volatility where precise batch costing matters.
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