Carrying Cost Calculator

Formula

The formula to calculate Carrying Cost Percentage (CC) is:

\[ \text{CC} = \frac{\text{IHS}}{\text{TVI}} \times 100 \]

Where:

$ \text{CC} $ is the Carrying Cost Percentage (%).
$ \text{IHS} $ is the Inventory Holding Sum ($).
$ \text{TVI} $ is the Total Value of Inventory ($).

What is Carrying Cost?

Carrying cost, also known as holding cost, refers to the total cost incurred by a business to hold and store inventory over a given period of time. This cost includes various factors such as inventory service costs, risk costs, capital costs, and storage costs. Carrying cost is typically expressed as a percentage of the total value of the inventory.

Businesses aim to minimize carrying costs to improve profitability and operational efficiency. High carrying costs can affect a company's financial performance, making it essential to manage inventory levels effectively.

Example Calculation

Let's consider an example:

Inventory Service Cost: $1,000
Inventory Risk Cost: $500
Capital Cost: $1,200
Storage Cost: $300
Total Value of Inventory (TVI): $10,000

Using the formula to calculate Carrying Cost Percentage:

\[ \text{IHS} = 1,000 + 500 + 1,200 + 300 = 3,000 \]

\[ \text{CC} = \frac{3,000}{10,000} \times 100 = 30\% \]

This means that the Carrying Cost Percentage in this scenario is 30%.