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Opening inventory.. 5000
Purchases 2000
Closing inventory 6000
How is that we calculate average inventory is it 5000+6000÷2 ?
For ratio calculation purposeBecause we have two inventory valuations and we want the average
So add all the different values together and then divide by the number of valuations
There are only 2
If there had been another valuation half way through the year worth $8000, then average inventory would have been $5,000 + $6,000 + $8,000 = a total of $19,000 and an average of $6,333
OK?
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