What is a carrying cost?

Definition: A carrying cost is the expense associated with holding inventory over a period of time. In other words, it’s the cost of owning, storing, and keeping inventory to be sold to customers. What Does Carrying Cost Mean? In managerial accounting, there are many different costs associated with inventory beyond its actual cost.

What are some examples of carrying charges?

Examples of carrying charges include insurance costs, storage costs, and interest charges on borrowed funds. These costs are also sometimes referred to as an investment’s cost of carry . Since carrying charges increase the cost of an investment, they put downward pressure on that investment’s expected return.

How do you calculate inventory carrying cost?

Inventory carrying cost is a pretty simple calculation once you’ve figured out all the expenses that go into having these goods on hand. Add all those numbers together for the total carrying costs, then divide it by the total value of the inventory and multiply the result by 100 to get a percentage.

How can businesses reduce carrying costs?

Businesses can reduce their carrying costs by implementing efficient warehouse design and by using computerized inventory management systems to keep track of inventory levels. There are options business owners can implement to decrease the amount spent on carrying costs. For example, they can limit the volume of inventory they store.