What is physical cost in Dynamics 365 F&O?

Anything which has been received or shipped but not invoiced is considered as physical cost for inventory quantity which gets converted into financial cost once that transaction is invoiced.

How weighted average is calculated in Dynamics 365?

Weighted average calculation in Dynamics 365 is = Total Financial received Cost/ Financial received Quantity

So, what about if we have a transaction with status at physical received quantity and amount? Will that be considered in weighted average calculation?

You can control this calculation; you want with or without physical cost? Watch here how?