Your Ask Joey ™ Answer

What is the relationship between changes in inventory carrying costs and average inventory?

Inventory carrying costs relate to costs the company incurs to store or hold inventory in their warehouse. This can include costs such as warehouse rent, utilities for the warehouse, shrinkage (loss of inventory), and insurance.

So if the company believes inventory carrying costs are going to increase, then they would want to decrease the average inventory in the warehouse. If the company believes inventory carrying costs may decrease, then they could increase average inventory in the warehouse.

There are other factors that impact the company’s average inventory balance like lead time, costs of placing an order, and product demand.


Back To All Questions

You might also be interested in...

  • Three Reasons to Become an Accountant

    If you’re someone who is intrigued by numbers, enjoys problem-solving and wants to help others, then accounting might be the perfect career for you. While some people may be put off by its unalluring reputation, accounting is an excellent career choice that has many benefits. In this article, we look at three of the reasons...

  • Qualified Retirement Planning: Tax Advantages & Disadvantages

    Home Advantages and Disadvantages of Tax-Free and Deferred-Tax Retirement Plans What are “qualified retirement plans” and how can they be effective for tax planning? Well, there are plenty of tax savings advantages to individuals contributing to tax-free retirement accounts, as well as tax-deferred retirement accounts. However, this doesn’t necessarily mean that there are no disadvantages...

  • CPA Evolution Survival Guide

    Download Your eBook by selecting the download icon in the top right-hand corner