There are also taxes paid on inventory, and insurance premiums are based on value of assets, or inventory levels kept on hand. Storage Space Costs Inventory is located in Distribution Centers, Plant Warehouses, Public Warehouses and Rented Warehouses. The costs of these facilities are in direct relation to the amount of inventory held in these locations and the amount of space goods occupy. Inventory Risk Costs Inventory kept for a time frame over its useful life makes it obsolete. Inventory can be damaged in storage, with relocation, or with handling goods multiple times.
Inventory is also prone to shrinkage.
These costs must also be associated with carrying inventory. As you can see, as inventory increases, operating costs also increase. This carrying cost associated with inventory is rarely thought of when pricing out SKU's to be held in inventory. Take a look at this typical quantity discount purchase strategy. Thinking about these types of questions will put you on the right track.