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It also helps sales and accounting departments assess the profitability of a business's inventory. Related: A Guide to Data Analysis (With a Definition and FAQs) The monetary value of inventoryĬalculating the monetary value of the inventory average can be helpful when calculating the inventory turnover ratio. This suggests the bakery requires an extra 1.5 bags of flour each month for the next six months. This means the bakery had an average of 285kg of flour each month or 1,710kg over the six months. The bakery's inventory average of 10kg flour bags for each month from January to June is 28.5 units. The baker determines the inventory levels for each month as 32, 30, 35, 29, 22 and 23 bags of flour.

The bakery purchases flour in 10kg bags and wants to identify the inventory levels for the first six months of the year, with June being the current year. The baker wants to identify the inventory average of flour over the past six months to determine if the bakery needs to alter its procurement plans for the next six months. If the units calculated have the same monetary worth, you can simply multiply the unit value by the number of units to determine the average monetary value of inventory:Įxample: For a baker to produce enough goods over six months, they require 1800kg of flour. Related: 13 Financial Metrics to Track (And Why They're Important) Examples of the inventory average calculationīelow, you can explore two examples of the inventory average calculation for the number and monetary value of inventory: The number of inventory unitsĬalculating the number of units of inventory is usually helpful for procurement purposes and operations that require a specific number of units.

The inventory average for the retail business for October, November and December is 150,000. It identifies the inventory levels of October as 100,000 units of footwear, its November inventory as 150,000 units and the current inventory level of December as 200,000 units. Inventory average = (Current inventory + Previous inventory) / Number of periodsĮxample: A retail business that sells footwear wants to identify its inventory average over three months for October, November and December. Below, you can explore the inventory average formula: You can technically calculate the inventory average over any time period you want, such as for a day, week, month or year. These segments are the current inventory levels, the inventory levels of past periods and the number of periods. To calculate the inventory average formula, you require three segments of information.

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Related: How to Become a Stock Manager: Duties, Skills and Salary Calculate the inventory average If they use inventory values from a single day in winter, it's also likely to provide an exaggerated representation of their inventory levels. If they use values from inventory levels during a single day in summer, it's unlikely to provide an accurate insight into how to manage their inventory and procurement strategies. For example, a seasonal business might have more inventory during winter. The purpose of calculating these results is to provide a business with insights into how to better manage its procurement strategies.Ĭalculating the average number or value of inventory is usually a more accurate figure for planning procurement strategies compared to using values from a single point in time.

You can also use these results to calculate the inventory turnover ratio and inventory average period. The results from the inventory average calculation can outline how much inventory a business typically has within a given period. For example, you might calculate the inventory average over three months or three accounting periods. The period usually represents accounting periods. What is average inventory?Īverage inventory is a value that outlines the average number or value of inventory a business has over a period. In this article, we define the inventory average, detail the formula for calculating it, share several examples of the inventory average calculation and discuss when you can use the inventory average. Exploring how to use this calculation can help you gain valuable insights into a business' inventory activity. You can further use the results of this calculation to identify other inventory metrics, such as the inventory turnover ratio or inventory average period. Average inventory, also known as inventory average, is a calculation for identifying the average number or monetary value of inventory over a given period.

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