An AS/RS construction cost minimization model under throughput rate requirement constraint has been developed, whose objective function includes S/R machine cost, storage rack cost, and interrace conveyor cost. S/R machine cost is a function of the storage rack height, the unit load weight, and the control logic used by the system, while storage rack cost is a function of the storage rack height, the weight and the volume of the unit load. Since the model is a nonlinear integer programming problem which is very hard to solve exactly with large problem size, a solution procedure is developed to determine the height and the length of the storage rack with a fixed number of S/R machines, while increasing the number of S/R machines one by one to meet the throughput rate requirement.