How to Calculate Inventory Value

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"Inventory value" is a definition in business that accounts for the value a business has for inventory that it has yet to sell. Inventory value is generally calculated at the end of a company accounting period (for example, at the end of a quarter evaluation) in order to accurately represent the value of the company, since unsold inventory has a value that must be accounted for. In the business world, there are two methods to determine inventory value--the average cost method and the batch method. While the average cost method is easier to calculate, the batch method provides a more accurate value.

Average Cost Method

  • Find your average unit cost, which is the amount that every unit in your inventory costs for consumers to purchase.

  • Find the number of units in your inventory. This is the number of units that you have not sold.

  • Multiply the average cost per unit by the number of units in your inventory. For example, if the average cost per unit is $3, and the number of units in your inventory is 15, that means you have an inventory value of $45.

Batch Method

  • Find the unit cost of batch one. For our example, a batch of cereal costs $4 per unit. Find the quantity of each batch. For our example, batch one of cereal has 100 units.

  • Multiply the unit cost by the quantity of each batch in the inventory to find that batch's inventory value. In our example, that is $4 times 100, which equals $400 of inventory value.

  • Repeat Steps 1 and 2 for each successive batch. In our example, let's say there are a total of two batches. In batch two, there is cereal with a unit cost of $3 and a quantity of 75. $3 times 75 equals $225, which is the inventory value of batch two.

  • Add up all of the inventory values for each batch. In our example, that means adding $400 from batch one and $225 from batch two, which means the total inventory value is $625.

References

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