A way of calculating cost basis when figuring out gains or losses from a sale of mutual fund shares. This is done by adding up the number of shares owned as well as the total dollar amount of the shares; the dollar amount is divided by the number of shares. This number (the average cost basis) is then multiplied by the number of shares sold and compared to the actual sale amount to compute a gain or loss. Taobiz explains Average Cost Basis Method Many mutual fund companies include an average basis number on the confirmation statement, which is mailed to the client whenever shares are purchased or redeemed. The shareholder is not required to use this method.