That value might or might not be the same as the median value calculated from the same data. The total amount or value of your Inventory averaged over two or more accounting periods is called average Inventory.
When looking at a company's inventory status, this lens is often preferable to a single point in time or accounting period. Accounting can use a formula to track changes and activities over time. The right amount of Inventory propels a business forward and reflects its strengths in cost management, sales, and business relationships. Therefore, a lack of Inventory can result in lost sales opportunities and empty store shelves. However, when too much Inventory is on hand, capital is being held up unnecessarily and may even be jeopardized.įor example, some perishable, trendy, or seasonal items may not last long. Inventory management is critical for controlling costs and ensuring customer satisfaction. The average figures for other periods are calculated in the same way. Remember to include the base month in your fiscal year's calculations, dividing the total by 13 instead of 12. An analysis of inventory items averaged over two or more accounting periods is known as average Inventory.Īdd inventory counts at the end of each month and divide by the number of months to get it over a year. Indicators of inventory readiness are more stable with their calculation, which evens out the sudden fluctuations in either direction. Inventory balances at the end of each month are subject to large fluctuations depending on when large shipments arrive and when a buying surge or peak season brings down inventory levels significantly. Average Inventory estimates how much Inventory a business has over a specific time.
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