The Average Cost Method is a way of calculating the Cost of Goods Sold (COGS) for a business. This method requires the business to take the total inventory cost and divide it by the total units available. By doing this, businesses can get an accurate understanding of the average COGS they incurred while manufacturing or purchasing their products. This method helps companies track their expenses and manage their budgets more efficiently, which is especially important in competitive markets. It also ensures businesses are compliant with accounting standards and gives investors insight into the costs associated with running the company.