Suppose a trader buys commodity on four occasions:
1. 100 tons at 70 per ton,
2. 300 tons at 80 per ton,
3. 50 tons at 95 per ton
4. 60 tons at 75 per ton.
Total Purchase = 510 tons.
The Simple Average Price would be (70+80+50+60)/4=65.
However, the weighted average, taking into account the amount purchased on each transaction is
[(100 X 70) + (300 X 80) + (50 X 95) + (60 X 75)]/510=78.92