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Holding Cost

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Holding Costs are the costs associated with maintaining inventory material throughout the year. It includes the following:

  • Warehouse costs 
  • Security
  • Insurance
  • Inventory protection
  • Obsolete Inventory write-off
  • Personnel
  • Depreciation

Example:

A company XYZ manufactures plastic furniture that has to be stored in a warehouse and then shipped to retailers. XYZ will either lease or purchase warehouse space, and pay for utilities, insurance and security for the location. The company will also pay the labor to transport inventory into the warehouse, and then load the sold merchandise onto trucks for shipping. The firm also has some risk that the furniture may be damaged as it is moved in and out of the warehouse. All these cost comes under holding cost.

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