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 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 |
|
|
