Average Inventory Formula: Compare Endpoint and Snapshot Estimates

Read the observation dates and units

OpenStax uses a beginning/ending average in its turnover calculation. This original exercise compares that estimate with the arithmetic mean of four equally spaced cost-balance snapshots. The snapshots are currency values on the same stated cost basis, not a mixture of units and sales prices.

Calculate both stated estimates

The beginning/ending estimate is (1,000 + 1,000) ÷ 2 = 1,000. The four-snapshot arithmetic mean is (1,000 + 4,000 + 4,000 + 1,000) ÷ 4 = 2,500. Their difference is 1,500.

Both computations correctly apply their own stated rule. They answer slightly different sampling questions. The second calculation reflects the observed middle-period build, while the endpoint estimate does not.

Explain why neither number is an exact daily history

The four observations do not tell you every balance between those dates. A snapshot mean is not automatically a time-weighted daily average. You would need additional observations or explicit assumptions about how balances behaved between them.

If the same four balances were observed at irregular dates, a simple mean would still assign equal weight to each observation. That may over- or under-represent how long the business held each level. Keep the timestamp information rather than discarding it after copying the amounts.

Communicate the chosen method

A useful report labels the estimate and its source instead of displaying an unexplained precise figure.

Avoid mixing different bases

Do not average one cost balance with another amount measured at retail selling value. Use the same period boundaries when passing an estimate into turnover or days calculations. A change in sampling method can move a ratio even when operational activity is unchanged.

For a self-check, replace the middle snapshots with 1,000. Both means then become 1,000 under the stated calculations. Explain that the agreement comes from the revised observation pattern, not because every averaging method always produces the same answer.