Average inventory
Average inventory represents the typical quantity or value held over a period on the chosen calculation basis. In a simple constant-demand, instantaneous-replenishment model, average cycle stock is half the order quantity; add buffer stock where maintained. Averaging opening and closing balances is a different approximation and can be misleading with seasonal movements. Match the measure to the purpose, such as holding-cost calculation or a financial ratio.
Worked example
Order size 1,000 and constant buffer 200 give model average inventory 500 + 200 = 700 units.
Common mistake
Do not use Q/2 blindly when inventory is gradually replenished, demand is irregular or the model’s assumptions do not hold.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
