The Annual Carrying Cost Formula (ACCF) is a powerful tool used by businesses to understand and analyze the cost of holding their inventory. By utilizing the ACCF, businesses can estimate the cost of maintaining their inventory over a one-year period – helping them ensure that their financial resources are being used in the most efficient way.
The formula itself utilizes factors such as the item’s original purchase price, storage costs, taxes, insurance costs and more, to arrive at an accurate estimation of the overall cost associated with carrying that item for a yearly period. This allows businesses to make informed decisions about their stock levels to reduce the financial burden of excess inventory. By understanding their carrying costs, businesses can make smarter decisions about their inventory purchases and optimize their working capital.