The Daily Technical #94: What is the difference between WACC and IRR?

Good morning. Welcome to the 94th edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
What is the average cost method of inventory accounting?

Under this method, the assigned inventory costs are based on a weighted average, in which the total costs of production in a period are summed up and divided by the total number of items produced.

Each product cost is treated equally, and inventory costs are spread out evenly, disregarding the date of purchase or production.

This method would be improper to use if the products sold are each unique, with significant variance in the cost to manufacture and the sale price.

Common Mistakes

1. Applying the average cost method to diverse product lines. Reserve this method for homogeneous products with similar production costs and use specific identification for unique or significantly varied items.

2. Failing to update the average cost after new purchases. Recalculate your weighted average cost each time new inventory arrives to maintain accurate costing and prevent pricing errors.

TL;DR

• Assigns equal cost to inventory by dividing total production costs by total units produced

• Best for identical products manufactured in high-volume batches

• Unsuitable for unique products with varying production costs

TODAY’S QUESTION
What is the difference between WACC and IRR?

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