Holding cost is financing, space, handling and loss for a year, read as a share of the stock's value.
Financing Cost of Stock: What the Calculator Works Out for a San Luis, AZ Clothing Store
Three inputs drive the calculator here, Amount ($), Rate (annual %) and Term (months), and it answers with an estimated monthly payment, the total interest and the total repaid. For holding cost, enter the money tied up in stock, the rate on the financing that pays for it, and the months it takes to sell.
Illustration only, invented figures: a clothing store keeps $29,740 of goods on its racks, financed at a 14.2% annual rate over 12 months in this invented example. Worked by hand with the same level-payment arithmetic, that is about $2,673.07 a month, and the invented interest for the year is $2,336.84. That interest is the financing piece of the invented store's holding cost.
Stock bought with the owner's own cash still has a financing cost: the money could have paid down other debt or sat in the bank. Some owners enter the rate they would pay on a credit line to stand in for that cost. The same arithmetic works for restaurants holding food and paper stock and for gas stations carrying store goods.
Wages in the Holding Cost: Stock Handling at a San Luis, AZ Limited-Service Restaurant
At a limited-service restaurant, every case of cups, lids and frozen goods is received, counted, stored and rotated by someone on the payroll. That handling time is part of what stock costs.
Illustration only, invented figures: 6 hours a week of a crew member's time at $17.25 an hour in this invented example is $103.50 a week, or $5,382.00 over 52 weeks in this invented case.
The calculator does not take wages, so this piece is worked by hand. Ordering less often in larger lots can cut handling hours but raises the money tied up, which the financing piece then shows.
Salaried Time in the Parts Room: Holding Cost at a San Luis, AZ Auto Repair Shop
A shop whose salaried service manager also orders and tracks parts can count a share of that salary. Illustration only, invented figures: a manager paid $48,600 a year spends one-tenth of the week on parts in this invented example, so $4,860 a year of that invented salary belongs to holding cost.
Parts that sit for months cost more than their price, and the same reasoning applies to tires and fluids kept on hand. The salary share only needs a fresh look when the manager's duties change, so working it out once a year may be enough. Payroll records, one of the rows in the records table on the resources page, hold the hours and pay this step uses. A shop that keeps a running list of slow-moving parts can see which shelves carry most of that cost.
County Business Patterns counts 41 Automotive Parts, Accessories, and Tire Stores with a payroll in Yuma County, AZ for 2023 (NAICS 4413), 17 of them with fewer than five employees.
Occupancy Cost in the Holding Cost: The Shelf Space a San Luis, AZ Clothing Store's Stock Takes
Rent and utilities for a clothing store's floor and back room that hold stock are part of holding cost. A plain split is by floor area: if racks and the stock room take 40% of the space in this invented example, 40% of a $2,350 monthly rent goes in, $11,280 for the invented year.
| Part of holding cost | Invented yearly figure | How it was worked |
|---|---|---|
| Financing | $2,336.84 | 14.2% annual rate, 12 months |
| Shelf space | $11,280 | 40% of $2,350 rent, 12 months |
| Handling | $3,411.20 | 4 hours a week at $16.40 |
| Loss and damage | $446.10 | 1.5% of the stock value |
| Total | $17,474.14 | 58.8% of the stock value |
In this invented case the total comes to 58.8% of the stock's value for the year. Goods that sell through in half the time tie up money for half as long, which is why sell-through speed matters as much as the rate; the inventory financing page covers how the stock itself can be funded.
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