The formula to calculate Carrying Cost Percentage (CC) is:
\[ \text{CC} = \frac{\text{IHS}}{\text{TVI}} \times 100 \]
Where:
Carrying cost, also known as holding cost, refers to the total cost incurred by a business to hold and store inventory over a given period of time. This cost includes various factors such as inventory service costs, risk costs, capital costs, and storage costs. Carrying cost is typically expressed as a percentage of the total value of the inventory.
Businesses aim to minimize carrying costs to improve profitability and operational efficiency. High carrying costs can affect a company's financial performance, making it essential to manage inventory levels effectively.
Let's consider an example:
Using the formula to calculate Carrying Cost Percentage:
\[ \text{IHS} = 1,000 + 500 + 1,200 + 300 = 3,000 \]
\[ \text{CC} = \frac{3,000}{10,000} \times 100 = 30\% \]
This means that the Carrying Cost Percentage in this scenario is 30%.
