SLOW OR NON-MOVING

INVENTORY, DISPOSE OFF OR

HOLD

Pradeep kumar
09020242026
 Slow or Non-moving
Inventory
∗ High value of slow moving and non-moving items,
concerns blocked huge sum of money
unnecessarily in raw materials.
∗ To overcome this problem, it is necessary to
dispose-off as early as possible the non-moving
items or make arrangements for their exchange
with the Raw materials required by the concern.
∗ Besides this, no new requisition should be made
for the purchase of slow moving items, till the
existing stock is exhausted. Computation of
inventory carrying cost is used to identify slow
moving items
∗
 Inventory carrying cost

∗ The cost to carry inventory measures

the overhead that an organization
carries to support its inventory.


∗ In addition to the money originally

spent to purchase it, more money will
be spent on upkeep while inventory
sits in your possession.
 Inventory carrying cost

∗ The longer the inventory is there, the more it will

cost in upkeep.
∗
∗ Carrying cost is usually expressed as a percentage
that will be spent on inventory overhead per
year.
∗
∗ If inventory carrying cost is more means that
good should be removed from inventory.
∗ In non-moving inventory arriving at the
minimum or optimum price at which such
stocks can be disposed off.
∗ Any price higher than ICC would be
profitable for the company. In order to
arrive at breakeven point
∗
 Break even point

∗ I) Inventory carrying cost (storage, insurance,

supervision, etc.)
∗ ii) Probable deterioration in quality - money
value of such loss;
∗ iii) Interest on money tied up in such
inventory;
∗ iv) Opportunity cost (or transfer earning) of
money locked up.
∗
 Calculation of Inventory Carrying
Cost

∗ I) Inventory Carrying Rate:

∗ This can best be explained by the example below.... 
1. Add up your annual Inventory Costs: 
Example: 
$800k = Storage 
$400k = Handling 
$600k = Obsolescence 
$800k = Damage 
$600k = Administrative 
$200k = Loss (pilferage etc.) 
$3,400k Total
∗ 2. Divide the Inventory Costs by the Average
Inventory Value: 
Example: 
$3,400k / $34,000k = 10%
∗
Calculation of Inventory
Carrying Cost

∗ 3. Add up your: 
9% = Opportunity Cost of Capital (the
return you could reasonably expect if you
used the money elsewhere) 
4% = Insurance 
6% = Taxes 
19%
∗ 4. Add your percentages: 10% + 19% =
29% 
Your Inventory Carrying Rate = 29%
∗
 Calculation of Inventory Carrying
Cost

∗ II) Inventory Carrying Costs:

∗ Inventory Carrying Cost = Inventory Carrying Rate
(see above) X Average Inventory Value
∗ Example: $9,860,000 = 29% X $34,000,000
∗
Thank you