Free tool
Inventory carrying cost calculator
Add the annual costs of keeping inventory, using a percentage or dollar amount for each component.
Your average inventory and costs
All starting rates are illustrative inputs, not benchmarks. Enter your own annual cost for each part.
Annual inventory carrying cost
$57,500
- Effective carrying rate
- 23%
- Monthly equivalent
- $4,791.67
- Annual cost per unit
- $2.30
A fixed warehouse lease can be allocated to inventory for budgeting, but its marginal cost for one more unit may differ.
The formula
Annual carrying cost = sum of annual component costs
For a percentage component: annual cost = average inventory value × component rate
Effective carrying rate = annual carrying cost ÷ average inventory value
- Average inventory value
- The typical value of goods held during the year, at cost.
- Component rate
- An annual percentage for a cost category; you may instead enter its annual dollar cost.
- Average units
- Typical unit count held; used only for the optional per-unit result.
Worked example
- Average inventory at cost is $250,000. The five illustrative annual rates are 8% capital, 6% storage, 2% insurance and tax, 5% obsolescence and shrink, and 2% handling.
- Together the rates are 23%. Annual carrying cost is $250,000 × 23% = $57,500.
- Monthly equivalent is $57,500 ÷ 12 = $4,791.67.
- At 25,000 average units, annual cost per unit is $57,500 ÷ 25,000 = $2.30.
When it applies
- Annual inventory budgeting and the holding-cost input to EOQ.
When it breaks down
- A fixed warehouse lease may have a very different marginal cost from its allocated per-unit share.
Common mistakes
Counting only rent
Capital, damage, shrink and handling can also cost money while goods sit.
Using a year-end snapshot
Use average inventory, so one unusual balance date does not dominate the estimate.
Double-counting financing
Include a capital charge once, not again under another cost component.
Questions
What is carrying cost of inventory?
The yearly cost of keeping stock, including capital, storage, insurance, obsolescence and handling.
What is the difference between ordering and carrying cost?
Ordering cost is paid when a new order is placed and received; carrying cost accrues while stock is held.
Is carrying cost the same as holding cost?
Yes. Both names describe the cost of keeping inventory over time.
How much is inventory carrying cost?
Calculate your own annual component costs against average inventory value; a universal percentage is not reliable.
What is carrying cost in EOQ?
It is the annual cost of holding one unit, used to balance ordering and holding costs.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.