Minimum Limit or Minimum Level of Stock
Minimum Limit or Minimum Level of Stock:
Learning Objective:
- Definite and explain minimum limit or minimum level of stock.
- How is minimum limit or minimum level calculated?
Definition and Explanation:
The minimum level or minimum stock is that level of stock below which stock should not be allowed to fall. In case of any item falling below this level, there is danger of stopping of production and, therefore, the management should give top priority to the acquisition of new supplies.
Formula:
Minimum level or minimum limit can be calculated by the following formula or equation:
Minimum limit or level = Re-order level or ordering point – Average or normal usage × Normal re-order period
Or the formula can be written as:
Minimum limit or level = Re-order level or ordering point – Average usage for Normal period
Example:
Normal usage | 100 units per day | ||
Maximum usage | 130 units per day | ||
Minimum usage | 70 units per day | ||
Re-order period | 25 to 30 days | ||
Calculate: minimum limit or levelTo calculate minimum limit of materials we must calculate re-order point or re-order level first. Calculation:
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You may also be interested in other articles from “materials and inventory cost control” chapter.
- Need for Materials Control
- Requirements of a System of Materials control
- Stock Control
- Ordering Level or Ordering Point or Re-order Level
- Minimum Level or Minimum Limit
- Maximum Level or Maximum Limit
- Danger Level
- Economic Order Quantity EOQ
Other Related Accounting Articles:
- Maximum Level or Maximum Limit of Stock
- Danger Level of Materials or Inventory Stock
- Re-order Level or Ordering Point or Ordering Level
- Stock Control
- Materials and Inventory Cost Control
- Need for Materials Control
- Requirements of a System of Materials Control
- Reorder Level
- Inventory Turnover Ratio or Stock Turnover Ratio (ITR)
- Cost Accounting Procedure for Spoiled Goods
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