Controlling inventory turnover is the key to keeping our shelves stocked with interesting products and keeping the cash flowing. We want to buy the merchandise, move it quickly and then repurchase more products for our customers. However, if the turnover becomes too high, sales may be lost because of reduced customer selection. Here's how we calculate inventory turns to help create a proper inventory control:
Here's How:
- Start with the Beginning Inventory At Cost
- Add Purchases At Cost
- Subtract Ending Inventory At Cost
- Subtract Cost of Scrapped and Lost items (if applicable)
- Divide by the Cost of Sales
- The result is the number of times the average inventory is sold and replaced.
Tips:
- Inventory turnover can be calculated in whole, as well as by department or merchandise category.
- Inventory turns can be calculated by the month, quarter, season or year.
