Legal Definitions - carrying cost

Definition: The cost of holding or storing inventory for a certain period of time. It includes expenses such as storage, insurance, and opportunity cost of the capital invested in the inventory.

Example: A company that produces and sells shoes has to store its inventory in a warehouse until it is sold. The cost of renting the warehouse, insuring the inventory, and the interest on the money invested in the inventory are all part of the carrying cost.

This example illustrates how carrying cost is an important factor in determining the profitability of a business. The higher the carrying cost, the lower the profit margin. Therefore, businesses try to minimize their carrying cost by optimizing their inventory levels and reducing the time it takes to sell their products.