What Is Average Inventory?

Average inventory is a calculation that estimates the value or number of a particular good or set of goods during two or more specified time periods. Average inventory is the mean value of 澳洲幸运5官方开奖结果体彩网:inventory within a certain time period, which may vary from the median val💧ue of the same data set, and is computed by averaging the starting and ending inventory values over a sp🌳ecified period.

Understanding Average Inventory

Inventory is the value of all the goods ready for sale or all of the 澳洲幸运5官方开奖结果体彩网:raw materials to create those goods that are stored by a company. S꧅uccessful inventory management is a key focal point for companies as it allows them t🎐o better manage their overall business in terms of sales, costs, and relationships with their suppliers.

Since two points do not always accurately represent changes in inventory over different time periods, average inventory is frequently calculated by usinꦇg the number of💜 points needed to more accurately reflect activities across a certain amount of time.

For instance, if a🅺 business was attempting to calculate the average inventory over the course of🧔 a fiscal year, it may be more accurate to use the inventory count from the end of each month, including the base month. The values associated with each point are added together and divided by the number of points, in this case, 13, to determine the average inventory.

The average inventory figures can be used as a point of comparison when looking at overall sales volume, allowing a business to track inventory losses that may have occurred due to theft or 澳洲幸运5官方开奖结果体彩网:shrinkage, or due to damaged goods cau♊sed by mishandling. It also accounts for any perishable inventory that has expired.

ဣ The formula for average inventory can be expressed as follows:

Average Inventory = (Current Inventory + Previous Inventory) / Number of Periods

Average inventory is used often in 澳洲幸运5官方开奖结果体彩网:ratio analysis; for instance, in calculating 澳洲幸运5官方开奖结果体彩网:inventory turnover.

Moving Average Inventory

A company may choose to use a moving average inventory when it's possible to maintain a 澳洲幸运5官方开奖结果体彩网:perpetual inventory tracking system. This allows the business to adjust the values of the inventory items based on information from the last purcha♊📖se.

Effectively, this helps compare inventory averages across multiple time periods by converting all pricing to the current market standard. This makes it similar to adjusting historical data based on the rate of 澳洲幸运5官方开奖结果体彩网:inflation for more stable market items. It allows simpler𝓰 comparisons on items that e🅠xperience high levels of volatility.

Example of Average Inventory

A shoe company is interested in better managing its inventory. The current inventory in its warehouse is equal to $10,000. This is in line wit🌜h the inventory for the three previous months, which were valued at $9,000, $8,500, and $12,000.

When calculating a three-month inventory average, the shoe company achiꦫeves the average by adding the current inventory of $10,000 to the previous three months of inventor🌊y, recorded as $9,000, $8,500 and $12,000, and dividing it by the number of data points, as follows:

Average Inventory = ($10,000 + $9,000 + $8,500 + $12,000) / 4

This results in an average inventory of $9,875 ove💛r the time period being examined.