Inventory Carrying Cost Calculator
Calculate the total annual carrying cost of warehouse inventory across capital financing, plant floor storage, insurance, property taxes, and obsolescence.
Holding & Carrying Cost Rates
Annual Inventory Carrying Cost Formula
Annual Carrying Cost = Average Inventory Value × (Capital % + Storage % + Insurance/Taxes % + Obsolescence %)- Cost of Capital: Interest on inventory working capital loans or opportunity cost of tied-up cash (typically 8%–15%).
- Storage Space: Rent, utilities, warehouse staff, racks, and forklift maintenance (typically 2%–5%).
- Risk & Obsolescence: Engineering revisions, shelf-life expiration, shrinkage, and damage (typically 3%–6%).
Step-by-Step Worked Example
Calculation Steps:
- Total Carrying Rate = 12% + 5% + 3% + 4% + 1% = 25%
- Annual Carrying Cost = $1,000,000 × 25% = $250,000 / year
- Monthly Carrying Cost = $250,000 / 12 = $20,833.33 / month
- Daily Carrying Cost = $250,000 / 365 = $684.93 / day
How to Use This Calculator
- 1Enter your average annual inventory balance across raw, WIP, and finished stock.
- 2Input your financing cost of capital percentage.
- 3Specify percentages for storage space, insurance, taxes, and obsolescence risk.
Assumptions & Limitations
- Industrial carrying rates typically range between 20% and 30% of inventory value annually.
- Linear cost distribution across the calendar operating year.
Frequently Asked Questions
Why is inventory carrying cost higher than just warehouse rent?
Because the largest single component of carrying cost is usually the cost of capital (the interest paid on working capital financing or the return lost by not investing that cash elsewhere), followed by obsolescence write-downs.
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