The 13-point average for inventory for the calendar year 2024 would be the sum of the following: (the inventory amount at December 31, 2023 plus the 12 end-of-the-month amounts in 2024) divided by 13.
The reason for using the amounts for these 13 dates is to develop an average for the year that considers every month’s inventory. This is preferred over an annual average that is based on just two points: (the amount of inventory at December 31, 2023 plus the inventory amount at December 31, 2024) divided by 2. By using 13 points throughout the year, seasonal variations will be included. Using only the end of year point for two years is generally not indicative of the inventory levels in the months throughout the year.
The 13-point average is also useful for determining other annual averages, such as accounts receivable, assets, and so on. With the use of computers, we can easily improve upon the 13-point average by using 365 points during the year.
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