Estimate the annual cost of holding metal stock using inventory value, carrying rate, storage, insurance, handling, shrinkage and other holding costs.
Enter the annual carrying rate only for costs represented by that percentage. Avoid entering the same costs again in the separate fields below.
Use these fields for costs not already included in the carrying rate.
Inventory carrying cost is the expense associated with keeping material in stock instead of using or selling it immediately. For metal inventory, the cost can be particularly important because stock may have a high monetary value and occupy substantial warehouse space.
Depending on the accounting or management method used, carrying cost can include financing or capital cost, storage, insurance, handling, shrinkage, obsolescence and other inventory-related expenses.
The calculator first estimates the value of the average metal inventory by multiplying the average stock quantity by the entered value per kilogram.
The annual carrying-rate component is then calculated from that inventory value using the annual carrying rate.
Separate annual storage, insurance, handling, shrinkage and other costs are then added when they are not already included in the carrying rate.
Carrying cost is normally more meaningful when based on the average inventory held during the period rather than a single unusually high or low stock level.
If stock changes significantly during the year, use an appropriate average inventory value rather than simply using the largest purchase quantity.
Metal inventory ties up working capital. A carrying-rate percentage may be used to represent the financing or opportunity cost associated with capital invested in stock.
The correct rate depends on the organization's financing structure and costing methodology. This calculator does not assume a universally correct carrying percentage.
Metal stock can require warehouse space, racks, floor area, environmental controls, security and material-handling resources. These expenses can be significant when inventory remains in storage for long periods.
Enter annual storage costs separately only when they are not already represented by the carrying rate.
Insurance can protect stored material against specified risks, while handling costs can arise from receiving, movement, counting and other warehouse activities.
Shrinkage or loss can represent material that becomes unavailable through damage, deterioration, loss or other causes. Use a realistic percentage based on your own inventory records.
Suppose a business holds an average of 10,000 kg of metal valued at 120 currency units per kilogram. The average inventory value is therefore 1,200,000 currency units.
If the annual carrying rate is 18%, the carrying-rate component is 216,000 currency units before separately entered storage, insurance, handling, shrinkage and other costs.
The calculator adds those additional annual costs and then converts the result to an annual cost per kilogram and a cost for the selected holding period.
Expressing carrying cost per kilogram makes the effect of holding inventory easier to compare with purchasing and production economics.
This figure represents the estimated cost of holding each kilogram for one year under the assumptions entered.
Inventory carrying cost can help evaluate whether buying larger quantities is economically sensible. A large purchase may produce a lower material price while simultaneously increasing the amount of capital tied up in inventory.
Compare the potential purchase-price saving with the additional inventory carrying cost, warehouse requirements, cash-flow impact and risk of excess or obsolete stock.
Double-counting storage: Do not add storage separately if your carrying percentage already includes it.
Using peak stock as average stock: This can overstate or distort the annual carrying cost.
Ignoring capital cost: Valuable metal stock can tie up significant working capital.
Ignoring shrinkage: Damage, loss and inventory discrepancies can add to the real cost of holding stock.
Using an arbitrary carrying rate: Use a rate consistent with your organization's financial or inventory-costing methodology.
This calculator provides an estimate based on the assumptions entered by the user. It does not prescribe an accounting method, financing rate, inventory valuation method or statutory treatment.
Avoid double-counting any expense that is already incorporated into the carrying-rate percentage.
What is metal inventory carrying cost?
It is the cost associated with keeping metal stock in inventory over time, including applicable financing, storage, insurance, handling and other costs.
How is inventory carrying cost calculated?
A common method multiplies average inventory value by an annual carrying-cost rate and adds separate costs that are not included in that rate.
Can I calculate carrying cost per kilogram?
Yes. The calculator divides annual carrying cost by the average inventory quantity.
Should storage and insurance be included in the carrying rate?
It depends on how your carrying rate is defined. Avoid entering the same cost twice.
What is shrinkage cost?
It estimates the financial effect of inventory loss or shrinkage using the percentage entered by the user.
Does the calculator determine the correct carrying rate?
No. The carrying rate should reflect your organization's financial and inventory-costing assumptions.