You can obtain these figures in several ways, including using the economic order quantity, or EOQ, level.Ĭalculate the EOQ by multiplying your annual usage by your ordering cost. Significantly varying averages indicate that the business operates in a risky industry where the prediction of inventory levels is difficult.ĭetermine optimum inventory levels based on the results of the average inventory calculation. The variation in the average inventory can be indicative of the nature of the business and the extent to which it is subject to volatility. Your records must track the opening balance and the closing balance of inventory on a daily basis.Ĭalculate the average inventory by adding the opening inventory to the closing inventory, then divide by two. The records should contain information on existing inventory as well as inventory movements, including when new stock arrives and when you dispose of existing stock.
