Inventory Carrying Cost Calculator

How it is calculated

The tool multiplies the value of the stock you hold by a yearly holding rate: annual cost = inventory value × rate ÷ 100, and monthly cost = annual cost ÷ 12. The inventory value should be the average value of stock on hand over the year, valued at cost, not at selling price. The rate is a percentage of that value per year and should add up everything it costs to hold stock: the money tied up (capital cost), storage space, insurance, taxes, and losses from damage, theft or goods going out of date. You choose the rate yourself; the tool does not estimate it. Neither input can be negative, and a rate above 100 shows no result because the holding cost is a share of the stock value. The monthly figure is just one twelfth, so it ignores seasonal swings in how much stock you hold.

Common mistakes

• Using the selling price of the stock. Carrying cost is based on what you paid for it, so use inventory at cost.
• Using the stock value on a single day, such as year end, instead of the average. A seasonal business can be far off from its average at that moment.
• Entering the rate as a decimal such as 0.25. The field takes a percentage, so 0.25 is read as 0.25% and the annual cost comes out as $375.00 instead of $37,500.00.
• Counting only the interest or storage part of the rate. A rate built from the cost of capital alone leaves out insurance, shrinkage and obsolescence, so the cost is understated.
• Treating the monthly figure as the real cost of a particular month. It is the annual cost divided by 12 and does not follow changes in how much stock you hold.