ACCA Financial Management (F9) Certification Practice Exam

Which formula computes the average inventory level?

1. (Q/2) + b

2. Q x average demand

3. (Total units - safety stock) / 2

4. (Minimum usage + maximum usage) / 2

The correct answer is: (Q/2) + b

The average inventory level is typically calculated using the formula that considers the order quantity and any additional components that might influence inventory levels, such as backlog or safety stock. In the context of the options provided, the formula that effectively computes the average inventory level is represented by the first choice, which indicates that the average inventory can be derived from taking half of the order quantity (Q/2) and adding any additional stock held, commonly referenced as 'b.' This approach aligns with the common inventory management principle where average inventory is often represented as half of the order quantity plus any safety stock or other buffer stock that might be required for demand fluctuations. The other formulas might reflect different aspects of inventory management, but they do not calculate the average inventory level as clearly or directly as the chosen answer. For example, multiplying total units by average demand focuses more on overall demand calculation rather than inventory averaging, while another option related to usage incorporates minimum and maximum metrics that do not necessarily provide a straightforward average inventory figure.