Question

How to calculate average inventory in inventory turnover formula?

I'm trying to find total inventory turnover (COGS/average inventory). The only problem is how do I calculate average inventory?

Given: Ending inventory: 18660, Sales: 1784080, COGS: 1428730

8 months ago - 2 answers

Best Answer

Chosen by Asker

Inventory turnover ratio = ( Cost of Good Sold/Average Inventory)
Average Inventory - (Op Stock+Cl Stock)/2
Since you have given only Ending Inventory, it is assumed that Op Inventory was 0

So Your Inventory Turnover Ratio = 1428730/18660
= 73.5 Which is very good
You maintain a stock of 5 days which is good as per JIT and your concern has good Lean Mangement practices.

Source(s):

8 months ago

Other Answers

Most turnover problems in textbooks just use ending inventory (or ending accounts receivable), if only for simplicity.

by Don G - 8 months ago