Buying / Procurement Officer Question:
Explain me how you can calculate inventory turns?
Answer:
Inventory turns is the annual cost of the inventory issued divided by the average monthly inventory value.
The average monthly inventory value is calculated by adding the past 12 monthly inventory values and dividing the total by 12. At the end of each subsequent month, add the latest month's inventory value and delete the 12th most distant monthly inventory value.
The annual cost of issues is calculated by adding the past 12 monthly cost of inventory issues. At the end of each subsequent month, add the latest month's cost of inventory issues and delete the 12th most distant month.
Example: Annual Cost of Issues/ Average Monthly Inventory Value = Inventory Turns $400,000/$100,000 = 4.0 Turns.
The average monthly inventory value is calculated by adding the past 12 monthly inventory values and dividing the total by 12. At the end of each subsequent month, add the latest month's inventory value and delete the 12th most distant monthly inventory value.
The annual cost of issues is calculated by adding the past 12 monthly cost of inventory issues. At the end of each subsequent month, add the latest month's cost of inventory issues and delete the 12th most distant month.
Example: Annual Cost of Issues/ Average Monthly Inventory Value = Inventory Turns $400,000/$100,000 = 4.0 Turns.