Inventory Carrying Cost Calculator
Calculate the annual cost of holding inventory. Enter your carrying cost rate and average inventory value to see total carrying cost, with the formula explained.
Carrying cost is what it costs to hold inventory for a year: capital tied up, storage, insurance, shrinkage, and obsolescence. It is usually expressed as a percentage of inventory value.
How it works
Multiply your carrying cost rate by the average value of inventory held. If you do not know your rate, derive it as annual carrying costs divided by average inventory value.
The formula
Annual carrying cost = carrying cost rate x average inventory value. The rate bundles capital, storage, service, and risk costs and is policy-dependent.
Worked example
At a 26% carrying rate on 2,000,000 of average inventory, annual carrying cost = 0.26 x 2,000,000 = 520,000.
Frequently asked questions
What rate should I use?
Many firms use 15-30% depending on capital cost, storage, and risk. Derive your own from annual carrying costs divided by average inventory value where possible.
What goes into carrying cost?
Cost of capital, warehousing and handling that varies with volume, insurance, taxes, shrinkage, damage, and obsolescence.
How does this connect to EOQ?
The carrying rate times unit cost is the per-unit holding cost the EOQ formula uses to balance against ordering cost.
Related tools
This is a planning estimate. Results depend on your inputs and assumptions; confirm against your own data before ordering.
- The carrying-cost rate captures capital, storage, service, and risk costs.
- Average inventory value is representative of the year.