What is the company’s inventory?
Inventory is one of an organization’s most important resources for ensuring the long-term viability of its business model. The demand for the company’s goods can fluctuate quite a bit. The possibilities are as follows:
In some circumstances, it may rise due to seasonal and other causes (in this case, the availability of inventory will allow the company to meet demand swiftly and avoid revenue deficits);
It may be reduced (in this case, the firm can reduce the current rate of output and save on production costs, satisfying the existing demand at the expense of stocks).
Furthermore, stocks will come in handy if there are any problems with production, such as if it suddenly stops or slows down.
Thus, the purpose of inventory is to ensure the smooth operation of the mechanism of interaction between the enterprise and the market as a supplier capable of meeting consumer demand on a consistent basis and as a sustainable economic entity such as an employer, an investment object, and a consumer of resources required to ensure the operation of production
What is the average inventory and how to calculate it?
A company’s average inventory is a measure of how much inventory it has on hand over a certain period of time. This is typically done on a monthly basis, although it might vary based on the business strategy, industry, and other factors.
Inventory accounting requires you to know the average inventory for a specific time period in order to compute the value of inventory.
The average inventory is simply the sum of the beginning and the ending inventory. After that, divide the total by the number of months in the time frame you’re interested in finding information for. This is the equation:
Average inventory = (Beginning inventory + Ending inventory) / Months in the period
If you know how quickly your product sells and how much inventory you generally have on hand, you’ll be able to make more educated decisions regarding your business. Inventory managers and business owners should calculate their average inventory on a regular basis to ensure that sales are proceeding according to plan.