Enter the average inventory level (# of units) and the holding cost per unit per year ($/unit/year) into the Annual Holding Cost Calculator. The calculator will evaluate and display the Annual Holding Cost.
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Annual Holding Cost Formula
The following formula is used to calculate the Annual Holding Cost.
AHC = AIL * HCU
- Where AHC is the Annual Holding Cost ($)
- AIL is the average inventory level (# of units)
- HCU is the holding cost per unit per year ($/unit/year)
To calculate annual holding costs, multiply the average inventory level by the holding cost per unit per year.
How to Calculate Annual Holding Cost?
The following example problems outline how to calculate Annual Holding Cost.
Example Problem #1:
- First, determine the average inventory level (# of units). The average inventory level (# of units) is given as 500.
- Next, determine the holding cost per unit per year ($/unit/year). The holding cost per unit per year ($/unit/year) is provided as 25.
- Finally, calculate the Annual Holding Cost using the equation above:
AHC = AIL * HCU
The values given above are inserted into the equation below:
AHC = 500 * 25 = 12500 ($)
Example Problem #2:
The variables needed for this problem are provided below:
average inventory level (# of units) = 300
holding cost per unit per year ($/unit/year) = 30
Entering these values and solving gives:
AHC = AIL * HCU = 9000 ($)
