Holding costs are typically based on what factor?

Holding costs, also known as carrying costs, are primarily associated with the value of the inventory items that a business maintains over a specific period of time. These costs encompass various expenses related to storing unsold goods, including warehousing costs, insurance, depreciation, opportunity costs, and potential obsolescence of the inventory.

When determining holding costs, the value of the item in inventory is a critical factor because it directly influences how much is spent to store and manage those items. The higher the value of the inventory, the greater the overall holding costs will be, as businesses will incur more significant expenses to protect and manage those valuable assets.

This understanding emphasizes the importance of accurately assessing and managing inventory levels to optimize costs while ensuring product availability.