Minimum Limit or Minimum Level of Stock:
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 stockshould not be allowed to fall. In case of any item falling below this level, thereis danger of stopping of production and, therefore, the management shouldgive top priority to the acquisition of new supplies.
Minimum level or minimum limit can be calculated by the following formula:
[ 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 ]
100 units per day
130 units per day
70 units per day
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.
Ordering point or re-order level = Maximum daily or weekly or monthly usage× Maximum re-order= 130 × 30
= 3,900 units