Carrying Costs

Carrying Costs ⇒ are the costs the company incurs when it holds inventory.

Carrying costs include rent and utilities related to storage; insurance and taxes on the inventory; costs of employees who manage and protect the inventory; damaged or stolen inventory; the lost opportunity cost of having money invested in inventory (called cost of capital); and other storage costs.

Because storage of inventory does not add value to the inventory items, carrying costs are expensed on the income statement as incurred. They are not added to the cost of the inventory and thus are not included on the balance sheet.