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The Inventory Cost Calculator estimates annual inventory costs based on average units, unit cost, carrying cost rate, storage cost per unit per month, and shrinkage rate.
Inventory Value = Average Units × Unit CostCarrying Cost (annual) = Inventory Value × (Carrying Cost Rate% ÷ 100)Storage Cost (annual) = Average Units × Storage per Unit per Month × 12Shrinkage Cost (annual) = Inventory Value × (Shrinkage Rate% ÷ 100)Total Annual Inventory Cost = Carrying + Storage + ShrinkagePer‑Unit Annual Cost = Total Annual Cost ÷ Average UnitsInputs: Average Units 10,000; Unit Cost $25; Carrying Cost Rate 22%; Storage $0.10 per unit per month; Shrinkage Rate 2%.
Inventory Value = 10,000 × 25 = 250,000 dollarsCarrying Cost = 250,000 × 0.22 = 55,000 dollarsStorage Cost = 10,000 × 0.10 × 12 = 12,000 dollarsShrinkage Cost = 250,000 × 0.02 = 5,000 dollarsTotal Annual Inventory Cost = 55,000 + 12,000 + 5,000 = 72,000 dollarsPer‑Unit Annual Cost = 72,000 ÷ 10,000 = 7.20 dollarsCarrying cost typically reflects the cost of capital, insurance, obsolescence, and risk. Actual rates can vary by industry, inventory turns, and facilities.
Inventory does not just mean buying products and putting them on shelves. Managing it properly and strategically is important because it quietly costs you money through things like storage rent, insurance, shrinkage, and more.
Estimating exactly how much your inventory costs is the right step to avoid unexpected expenses — and that’s where our Inventory Cost Calculator comes in.
What we will cover in this guide:
Let's dive deeper to explore step by step everything about inventory cost calculation.
Inventory cost commonly refers to the total expenses associated with holding and managing inventory for a given period of time. Remember, inventory cost is not just the goods themselves — it also includes things such as:
An Inventory Cost Calculator is a free online tool that is specifically built for businesses to help them estimate the total yearly expenses they spend on products sitting in inventory. So instead of estimating manually with a copy pencil, you can use this calculator to estimate things such as:
As you enter the required inputs — such as average inventory units, unit cost, carrying cost rate (%), storage cost per unit (monthly), and shrinkage rate — the calculator compute them to give you both the total annual inventory cost and the per-unit annual cost.
Are you wondering how exactly the inventory cost is calculated? Don’t worry, we will break it down step by step to explain the logic behind calculating inventory cost:
Suppose you are running an electronic store with the following details:
1,000 units$5022%$12%Step 1 – Inventory Value
1,000 × $50 = $50,000
Step 2 – Carrying Cost
$50,000 × 22% = $11,000
Step 3 – Storage Cost
1,000 × $1 × 12 = $12,000
Step 4 – Shrinkage
$50,000 × 2% = $1,000
Step 5 – Total Annual Inventory Cost
$11,000 + $12,000 + $1,000 = $24,000
Step 6 – Per-Unit Annual Cost
$24,000 ÷ 1,000 = $24 per unit
👉 That means each unit is costing you an extra $24 per year just to sit on the shelf!
Tracking inventory cost is a smart strategy to make sure storing inventory is not costing you more than it should. It helps in:
Here are some inventory-related calculations that might help you:
How to calculate cost of goods sold without ending inventory – Use:
COGS = Beginning Inventory + Purchases − Ending Inventory
(If you do not have ending inventory, estimate it using sales trends and average inventory turnover.)
On average, most industries consider a good carrying cost rate to be around 15% to 30%. Higher rates usually indicate inefficient storage or slow-moving stock.