Carrying cost of inventory

The carrying cost of inventory is comprised of the expenses that a business incurs to hold inventory over time. There are a significant number of these costs, which add up to such a substantial amount that many organizations consider inventory to be a liability, rather than an asset. The various carrying costs of inventory are as follows:

  • Interest cost of the foregone funds invested in inventory
  • Losses due to obsolete inventory
  • Losses due to damaged inventory
  • Losses due to stolen inventory
  • Insurance on the warehouse area
  • Depreciation on the warehouse and the storage systems within it
  • Compensation and benefits for those employees charged with operating the warehouse area
  • Cost of the pallets and other containers used to store inventory
  • Cost of warehouse fire suppression systems
  • Cost of utilities for the warehouse
  • Taxes on the value of the inventory

      The carrying cost of inventory can easily add up to 25% of the value of the inventory.