Inventory cost calculator

Use our free calculator to estimate your total inventory cost. Analyze inefficiencies and make cost-effective stocking decisions.

Ordering cost

Holding cost

Shortage cost

Number of units

Total inventory cost

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What is inventory cost?

Inventory cost refers to the total cost involved in managing and maintaining inventory, not just buying it. This includes everything from placing orders to storing goods and dealing with stockouts.

What you need to know?

Identify hidden inventory costs and make smarter decision to cut waste, optimize stock levels and improve your overall profitability.
Besides the purchase price, you should also include any additional expenses like shipping and warehouseing, if necessary.
Whether you use FIFO, LIFO, or Weighted Average, your chosen method affects how costs are allocated and reported.

How is inventory cost calculated?

Inventory cost is calculated by putting together the ordering, holding and shortage cost for all units.

Total inventory cost = (Ordering cost + Holding cost + Shortage cost) * Number of items

Why is it important to calculate inventory cost?

Keeps finances accurate

By knowing exactly how much you’re spending on ordering, storing, and maintaining stock, you can avoid underestimating expenses in your financial reports.

Protects your profit margins

Hidden costs like storage fees or emergency reorders can eat into your margins. Calculating total inventory cost ensures your selling price covers all these expenses.

Improves cash flow

By identifying where money is being tied up in inventory, you can redirect funds to other critical areas of your business.

Frequently asked questions

This focuses on operational efficiency, while the accounting version focuses on valuing stock for reporting and calculating COGS.
You can reduce this by ordering in optimal quantities (EOQ), improving inventory turnover, reducing storage times, and using reliable vendors to avoid emergency orders.
Yes. If those costs are necessary to get inventory into your business and ready for sale, they should be included.

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