Correct way to get average price

Question

probably a basic question for a lot of you guys, but it was a subject of a friendly debate at my work earlier - needless to say none of the involved were accountants. In short, we are thinking about which is the proper way to get the average price of a sold item. Here is a simple example:

I sell part xyz 3 times this month.

I sell 100 for $67 each for $6700
I sell 80 at $70 each for $5600
and I sell 60 at $72 each for $4320

Is the average price of the product 69.67 ((67+70+72)/3)?

Or is it 69.25 (6700+5600+4320)/(100+80+60)?

Minor, I know, but still.

Is this just one of those things that you can say "it depends on how look at it". I tend to think it is the latter simply because it seems more accurate, you are actually figuring in all the individual items sold.

Thanks.

Answer 1

It is the latter. It is also called weighted average/mean.

See here for some more details.

http://en.wikipedia.org/wiki/Weighted_arithmetic_mean

Answer 2

The latter is better, because it actually tells you that what you have earned is the same as if you've sold all the items at this average price.

Answer 3

Your friends argument is like saying on an exam, the scores of a class is 1,1,1,1,1,1,5, average is 3.

think of your prices as 67, 67,..., 67, 70, ... 70, 72, 72,... 72, multiplication just saves you adding 240 numbers by hand...