How to Use the Inventory Carrying Cost Calculator
Inventory is cash parked in the form of goods. Stock sitting in a warehouse costs you more than the storage bill: there is the cost of the capital tied up, insurance and property taxes, and the obsolescence and shrinkage that eat into goods you never sell. This calculator adds those four rates together to size the annual cost of holding stock.
The formula is annual carrying cost = average inventory value × (cost of capital + storage + insurance/taxes + obsolescence). The monthly figure is that annual amount divided by 12, so you can drop it straight into a monthly P&L.
Every rate above is a placeholder. Your cost of capital depends on your borrowing rate or required return, storage depends on warehouse rent and labor, and obsolescence depends on your own write-off history, so enter figures from your own books. Results are for planning and do not replace the inventory valuation in your financial statements.
Frequently Asked Questions
There is no single right number — it depends on your industry and your cost of capital. Deriving each rate from your own data (borrowing rate, warehouse rent divided by average inventory, recent write-offs) is more accurate than a rule of thumb.
The simplest method is the average of beginning and ending inventory. If your stock level swings a lot during the year, averaging month-end balances is closer to reality.
The monthly amount is the annual total divided by 12 and then rounded, so multiplying it back can differ by a dollar or two. The annual figure is the base number.