Which formula is used to calculate carrying cost of inventory?

The correct formula to calculate carrying cost of inventory is indeed based on the association of the Cost of Goods Sold (COGS) with the carrying rate. This relationship is pivotal, as the carrying cost reflects the expenses related to housing unsold goods over a period.

The carrying cost typically includes expenses such as storage, insurance, and depreciation, all of which can be expressed as a percentage known as the carrying rate. By multiplying the Cost of Goods Sold by the carrying rate, one effectively determines the monetary value related to holding that inventory throughout the accounting period. This understanding helps businesses manage inventory levels and associated costs more effectively.

Other formulas proposed either misrepresent the relationship between inventory costs or use incorrect mathematical operations, leading to an inaccurate assessment of carrying costs.