Annual Holding Cost Calculator

Formula

To calculate the Annual Holding Cost ($AHC$):

\[ AHC = AIL \cdot HCU \]

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)

What is Annual Holding Cost?

Annual Holding Cost (AHC) refers to the total cost of holding inventory over a year. It includes expenses such as storage, insurance, and opportunity costs. The formula to calculate AHC is $AHC = AIL \cdot HCU$, where $AIL$ is the average inventory level and $HCU$ is the holding cost per unit per year.

Example Calculation 1

Let's assume the following values:

Average Inventory Level ($AIL$) = 500 units
Holding Cost per Unit per Year ($HCU$) = $2.50/unit/year

Using the formula:

\[ AHC = 500 \cdot 2.50 = 1250 \]

The Annual Holding Cost is $1,250.

Example Calculation 2

Let's assume the following values:

Average Inventory Level ($AIL$) = 1000 units
Holding Cost per Unit per Year ($HCU$) = $3.00/unit/year

Using the formula:

\[ AHC = 1000 \cdot 3.00 = 3000 \]

The Annual Holding Cost is $3,000.