Average Cost Definition

The average cost accounting method is one way to calculate cost basis. Once
you choose any accounting method you must continue to use the same method for
the life of the associated investment.

Fund Manager uses the Average Cost Single Category Method to calculate your
cost.

When selling shares using the average method the cost basis is determined by
multiplying the number of shares sold times the average price paid for all
shares prior to the date of the sell transaction. (All purchases are included in
this average, even if there have been previous sell transactions) Fund Manager
includes any commission fees or loads associated with the purchases in your
average price paid per share. The cost basis is also adjusted for any account
fees or return of capital distributions. Account fees increase your cost basis,
while return of capital distributions reduce your cost basis. Fund Manager
subtracts off any commission fees or loads associated with the sell to obtain
the sell value. The capital gains incurred equals the sell value minus the cost
basis.

__Example:__

Buy 100 shares @ $50/share for $5,000

Buy 100 shares @ $55/share for $5,500

Reinvest 1 share @ $56/share for $56

Sell 50 shares @ $60/share for $3,000

The total you've spent for all shares prior to the sell is $10,556 ($5,000 +
$5,500 + $56). The number of shares purchased was 201, so the average cost
per share is $10,556 / 201, which is $52.52/share. This $52.52 is the
number used as your cost basis for the shares sold. The capital gain on
this sell is ($60 - $52.52) * 50 shares, which is equal to $374. This
$52.52 cost per share does not change until you buy more shares.

### See Also

First In First Out Definition

Specific Lot Definition

About Reports

Capital Gain Report