![]() Next, divide COGS by average inventory to find our inventory turnover.(0.5 million + 0.3 million)/2 = an average of $0.4 million in inventory. At the end of the year, we had $0.3 million worth of beans. Let's say that, in our example, at the beginning of the year we had $0.5 million worth of coffee beans stored as inventory in our warehouses.If you use more than two data points, add all of the values together, then divide by the number of data points to find your average. However, using additional data points in between can give you a more accurate value for your average. The simplest way to find this is to add your starting inventory value for the time period you chose to your ending inventory value and divide by two. Your average inventory is the average monetary value of all of the goods you have sitting on warehouses and on store shelves that haven't been sold during a given time period. Next, divide COGS by your average inventory value during the time period you're analyzing. This article has been viewed 359,648 times.ĭivide your COGS by your average inventory. In this case, 100% of readers who voted found the article helpful, earning it our reader-approved status. WikiHow marks an article as reader-approved once it receives enough positive feedback. Mack Robinson College of Business and an MBA from Mercer University - Stetson School of Business and Economics. She holds a BS in Accounting from Georgia State University - J. Keila spent over a decade in the government and private sector before founding Little Fish Accounting. With over 15 years of experience in accounting, Keila specializes in advising freelancers, solopreneurs, and small businesses in reaching their financial goals through tax preparation, financial accounting, bookkeeping, small business tax, financial advisory, and personal tax planning services. ![]() Keila Hill-Trawick is a Certified Public Accountant (CPA) and owner at Little Fish Accounting, a CPA firm for small businesses in Washington, District of Columbia. For example, according to the Inventory Carrying Cost Calculator by The Balance, the average inventory carrying cost for the retail industry is 25%.This article was co-authored by Keila Hill-Trawick, CPA. To compare your inventory carrying cost with industry standards, you can use online calculators or tools that provide average costs for different industries and products. ![]() For example, if your total inventory carrying cost is $50,000 and your average inventory value is $100,000, your inventory carrying cost is 50%. To calculate your inventory carrying cost, you need to add up all the costs associated with holding your inventory and divide it by your average inventory value. ![]() A low inventory carrying cost means that you have a lean inventory that optimizes your cash flow and profitability. A high inventory carrying cost means that you have a large amount of inventory that consumes your resources and capital. This cost represents the total expense of holding and storing your inventory, including warehousing, handling, insurance, taxes, depreciation, and obsolescence. For example, according to the 2020 Warehouse and Distribution Center Benchmark Report by WERC, the median inventory accuracy rate for all industries was 98%.Ī third metric to evaluate inventory performance is the inventory carrying cost. To compare your inventory accuracy rate with industry standards, you can use online surveys or benchmarks that provide average rates for different industries and segments. For example, if you count 100 items and 95 of them match your records, your inventory accuracy rate is 95%. To calculate your inventory accuracy rate, you need to divide the number of correct inventory counts by the total number of inventory counts. A low inventory accuracy rate means that you have a poor and inaccurate inventory data that leads to errors and inefficiencies. A high inventory accuracy rate means that you have a reliable and consistent inventory data that supports your planning and decision making. This rate shows how closely your physical inventory matches your records in your inventory management system. Another important metric to measure inventory performance is the inventory accuracy rate.
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