Averaging simplifies bookkeeping where dividends are reinvested monthly and dozens of tiny lots accumulate. Holding periods are still tracked separately, so long and short-term character is not averaged away.
Once average cost has been used for a fund holding, changing method generally applies prospectively from the point of revocation rather than rewriting prior sales, so the choice is stickier than it looks.
It is not available for individual stocks in the United States, which surprises investors who have moved from jurisdictions where pooling is the norm, such as the UK approach described under uk-capital-gains-tax.
General information for the United States, not tax advice. Rules change and depend on your circumstances; take professional advice on your own position.
Related: cost-basis-methods, fifo-cost-basis, specific-identification-cost-basis, uk-capital-gains-tax, dividend