How is average inventory defined in an open-to-buy budget?

The average inventory in an open-to-buy budget is defined as the average amount of merchandise needed throughout the year to meet sales goals. This measure is crucial for retailers to effectively manage their stock levels in relation to anticipated customer demand. It helps ensure that the right amount of inventory is available to satisfy sales without overstocking, which can lead to excess inventory costs or stockouts, which can result in lost sales.

Calculating average inventory takes into account various factors such as sales forecasts, lead times for restocking, and seasonal sales fluctuations, allowing a business to budget effectively for purchasing new inventory. This aids in maintaining a balance between having enough products on hand to meet customer demand while avoiding tying up too much capital in unsold goods. In contrast, the other options focus on different aspects of inventory management, such as total sales or costs, rather than the ongoing needs for inventory throughout the year.