That’s as opposed to the average inventory level, which doesn’t involve costing. You’d apply that cost to your beginning and ending inventories, and calculate the average using monetary value. To determine average inventory cost, you’d determine the cost per unit with an inventory costing method. You can use the average inventory cost to compare the cost of goods available for sale at different times or different locations.Ĭompanies calculate average inventory by assigning a dollar value to the inventory it averages. The average inventory cost is the cost of goods available for sale divided by the number of inventory units on hand. Be mindful of the FIFO method when calculating inventory costs. The mean value of average inventory can apply to two things: inventory cost or inventory level. An average inventory on hand is needed to calculate it. The inventory turnover formula is used as a fundamental metric when evaluating overall multichannel inventory management efficiency. That’s how often inventory is sold and replenished over a set period of time. From a restaurant management perspective, it’s typically used to calculate inventory turnover ratio and inventory days. Divide the sum by two to determine the average inventory on hand.Īverage inventory is helpful for both inventory management and eCommerce accounting. In this case, the beginning inventory is added to the ending inventory of a time period. Like any other average, it’s calculated by adding two values and dividing by two. Average inventory is the mean value of a company’s inventory over a specific period.
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