Total Inventory Cost Calculator

This calculator helps you determine the total cost of inventory in inventory management processes. Total inventory cost includes all inventory-related costs of a company and its accurate calculation is critical to business efficiency and profitability.

When using the online total inventory cost calculator: you can make your calculations by entering your annual cost per unit, fixed cost per order, annual unit demand and order quantity information.

How to Calculate Total Inventory Cost?

Total inventory cost is a measure that includes all inventory-related costs of a company and these costs usually include the following elements:

1. Cost of Beginning Inventory (C1): The unit cost of inventories at the beginning of the period.
2. Ending Inventory Cost (C2): The unit cost of inventories at the end of the period.
3. Annual Sales Quantity (Q): The quantity of products sold in a given period.
4. Processing Cost per Order (S): Represents the costs incurred for processing, receiving or producing each order.
5. Storage Cost per Inventory (H): Storage cost for each unit of inventory.
6. Number of Working Days per Year (D): Indicates how many days the company works during the year.

The total inventory cost is usually calculated by the formula mentioned above.

In this formula

• (C1 + C2) x Q/2: The value of inventories is the average of the cost of beginning and ending inventories multiplied by the sales quantity.
• (S x D/Number of Orders): Order processing cost is calculated as the processing cost per order divided by the number of working days in the year divided by the number of orders.
• (H x Q): The storage cost is the storage cost for each inventory unit multiplied by the sales quantity.

These calculations can help the company evaluate inventory management strategies and optimize costs.

What is Total Inventory Cost?

Total inventory cost is a measure that encompasses all inventory-related costs of a business in a given period. These costs typically include factors such as product receiving, storage, order processing, loss or damage, inventory levels and depreciation of inventory. A total inventory cost calculation helps a business evaluate inventory management strategies and optimize costs.

Total inventory cost usually includes the following elements:

• Cost of Beginning Inventory: The cost of inventories at the beginning of the period.
• Ending Inventory Cost: The cost of inventories at the end of the period.
• Order Processing Cost: The cost of processing and managing new orders.
• Storage Cost: The cost of storing and maintaining inventories.
• Cost of Product Loss and Damage: Costs resulting from inventory losses or damages.
• Costs Arising from Inventory Levels: Costs incurred to maintain inventory levels.
• Impairment Cost: The cost resulting from the loss of value of stock.

Total inventory cost calculations play an important role in determining a business’s inventory management policies and improving cost effectiveness. An optimized inventory management strategy can give the business a competitive advantage and increase profitability.

Considerations in Total Cost Calculations

Some important factors to be considered in total cost calculations are as follows:

Cost Types:

The types of costs to be used in total cost calculations should be determined. Generally, direct costs (such as materials, labor, energy) and indirect costs (such as overhead costs, administrative costs) are taken into account.

Start and End Points:

The time period or production period to which the calculations belong should be specified. This is important for accurate cost analysis.

Identification of Related Expenses:

The expenses to be included in the calculation should be identified and it should be clearly understood how these expenses will be included in the cost calculation.

Related Units:

Total cost is usually calculated based on a specific production quantity or cost per unit. These units must be determined accurately.

Distinguishing Standard and Actual Values:

Differences between standard costs and actual costs should be identified and the reasons for these differences should be analyzed.

Allocation of Indirect Costs:

Indirect costs cannot be included in direct cost calculations. Therefore, these costs need to be allocated or estimated accurately.

Evaluation and Analysis:

The total costs calculated should be evaluated and analyzed. This analysis forms the basis for evaluating business performance and optimizing costs.

Cost Control and Improvement:

The results from the calculations should be used for cost control and improvement strategies. Continuously monitoring and improving costs is important for the sustainability of the business.

These considerations contribute to accurate, fair and effective total cost calculations.