The Average Inventory Cost Formula is a business tool used to calculate the average cost of goods purchased and held in inventory over time. This calculation is based on the total costs of purchasing and holding inventory during a given period, divided by the total number of items purchased and held during that same period. By accurately tracking their average inventory cost, companies can identify opportunities to streamline their supply chain processes and optimize their spending on inventory. With the right data at their fingertips, businesses can adjust their approach to inventory management, so they’re always paying the right price for their most important supplies.