Weighted Average Formula with Calculator

You can determine the weight of each of your data points by factoring in which numbers are the most important. For example, a business may put a heavier weight towards its net profit than its turnover. Weighted average is an average in which each quantity to be averaged is assigned a weight.

Figure out the weight of each point of data

The weights assigned to each criterion help the instructor in her student assessments. For example, you want to calculate the average time you spend traveling to school for 20 days. Let’s explore the concept of weighted average by learning what it means, looking at some real-world situations, and applying the formula to solve a few examples. Calculating a weighted average provides many benefits over a simple average. A customer’s decision to buy or not to buy a product depends on the quality of the product, knowledge of the product, cost of the product, and service by the franchise.

FAQs on Weighted Average Formula

The procedure you use will be a little different depending on whether or not your total weights add up to 1 (or 100%). The weighted average of the written test will be 0.5, the practical test will be 0.3, and sports will be 0.2. Also, if a value has the highest weight, then it will have more effect on the weighted average and vice-versa.

How to Calculate Weighted Average

So, having an A from an exam and a C from a quiz, you’d get a B as a standard average, but assuming that the exam is two times more important, you should get a B+. Therefore, your travel time to school averages 21.50 minutes for 20 days. The numbers that must be arranged refer to the grades you obtained in your quizzes, performance tasks, and final exam. A normal average calculation would completely miss this detail or require more data to provide the same accurate look.

A weighted average is, by definition, a average calculated on the basis of different occurrences. On the other hand, with simple averages all values are equal–nobody can intervene to ensure that some get more emphasis than others. The net result of using weighted average costing is that the recorded amount of inventory on hand represents a value a beginner’s guide to the types of liabilities on a balance sheet somewhere between the oldest and newest units purchased into stock. Similarly, the cost of goods sold will reflect a cost somewhere between that of the oldest and newest units that were sold during the period. The most common example of a weighted average is a school grade where homework, in-class work, and tests are weighted differently.

Typically, we present the weights in the form of a percentage or (in statistics) a probability of occurrence. Sometimes it may be a really significant difference – like a grade difference or even whether you pass or fail your course. For example, a teacher evaluates a student based on exam results, project work, attendance, and classroom behavior. The teacher also gives weights to each category to create a final evaluation of the student’s performance.

Even in sports, player statistics, like a quarterback’s rating, often calculate weighted averages to give a more accurate performance measure. The resulting weighted average price of the products according to the formula, considering the number of units sold, is approximately $18.57. This point represents a more accurate average price per product sold than a normal average would, as it considers the volume of sales for each product. A weighted average, as opposed to a simple average, considers the relative weight or contribution of the items being averaged. A weighted average computation accounts for the varying numbers’ significance levels in a data collection. When calculating a weighted average, a specified weight is multiplied by each value in the data set before the final computation is completed.

• It is a simple process of deriving at an average value between two or quantities when weight is added to it.
• But what happens when values have different weights, which means that they’re not equally important?
• This means you can “manipulate” your data set so it’s more relevant, especially when you don’t want to consider extreme values.

Weighted average calculations are used in many other jobs, such as by funding specialists and actuaries. This is true in situations such as calculating the benefits the average unemployed person receives. The values of each of the above categories can be used as the weight values. Multiply the 15 men who responded “YES” by a weight of 1.667 (their underrepresentation factor). Divide the 50 women who responded “YES” by a weight of 1.4 (their overrepresentation factor).

The weighted average formula is the summation of the product of weights and quantities, divided by the summation of weights. It is calculated by multiplying each data point by its corresponding weight, summing the products, and dividing by the sum of the weights. In calculating a simple average, or arithmetic mean, all numbers are treated equally and assigned equal weight. But a weighted average assigns weights that determine in advance the relative importance of each data point. In calculating a weighted average, each number in the data set is multiplied by a predetermined weight before the final calculation is made. The weighted average method is utilized in various settings, including financial firms, statistical analysis, and classrooms.

What is a weighted average cost of things in inventory management, a student’s GPA, or a company’s WACC? Weighted averages give a more complex picture than simple averages. The importance of how to calculate a weighted average extends across various fields and applications, serving as a critical tool for more nuanced analysis. In academic settings, it’s often used to calculate students’ grades by assigning different weights to different assignments or exams based on their importance towards the final grade. The weighted average cost of capital helps to find the capital value of the company.