The standard Inventory Turns formula, Annual Cost of Sales / Average
Inventory Level, is used for sellable goods. How ever, how do you calculate your
turns for raw materials? Since you do not directly sell your raw materials, you
base your calculation on material usage, rather than sales.
Raw Material Inventory Turns = Value of Actual Material Used / Value of
Raw Materials Inventory.
Example: ABC Company used $20,000,000 of raw materials and their average
inventory was $3,000,000.
Therefore, their raw material inventory turns , $20M/ $3M = 6.66.
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