Estimate annual inventory holding cost from average inventory value and carrying rate, or from units on hand and cost per unit per year, month, or quarter.

Annual Holding Cost Calculator

Estimate what your inventory costs to hold for one year.

By inventory value
By units on hand
$

Carrying rate covers storage, capital, insurance, shrinkage. 20–30% is typical.

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:

  1. First, determine the average inventory level (# of units). The average inventory level (# of units) is given as 500.
  2. Next, determine the holding cost per unit per year ($/unit/year). The holding cost per unit per year ($/unit/year) is provided as 25.
  3. 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 ($)