Some items take up more space, and are harder to handle, than other products. Many companies feel that items that take up more space should absorb more of the total cost of carrying inventory. In order to apportion the cost of space and material movement to individual products or product groups, we must determine how much of the total space used to store products is being used by an individual item.

1. Calculate the total cost of rent and utilities for the portion of your facility used to store inventoried products as well as moving material in that area.

2. Determine the total cubic volume of space currently used to store stock material. This may not be the total cubic warehouse space. For example, if you just moved into a new warehouse and are using just 25% of the available space, the inventory stored in that area would still need to absorb 100% of the cost of rent, utilities, and moving material, not just 25% of the total cost.

3. Divide the total cost by the total cubes used to store material in order to determine the storage cost per cube.

4. Determine the total cubic volume assigned to a particular product

## Thursday, August 21, 2008

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