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Home Materials and Inventory Cost Control Minimum Level or Minimum Limit
 
 

Minimum Limit or Minimum Level of Stock:

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 level

To calculate minimum limit of materials we must calculate re-order point or re-order level first.

Calculation:

Ordering point or re-order level = Maximum daily or weekly or monthly usage   Maximum re-order

= 130 30

= 3,900 units

Minimum limit or level = Re-order level or ordering point Average or normal usage Normal re-order period

= 3900 (100 27.5*)

1150 units

*(25 + 30 ) / 2

Relevant Articles:

Need for Materials Cost Control
Requirements for a System of Materials Control
Stock Control
Reorder Level
Minimum Level or Minimum Limit
Maximum Level or Maximum Limit
Danger Level of Materials or Inventory
Economic Order Quantity (EOQ)

 

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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