Home page     Downloads      Privacy policy     Disclaimer & terms of use     Contact us     Advertise with us     About us      Link to us

Home » Materials and Inventory Cost Control » Maximum Level or Maximum Limit of Stock

# Maximum Level or Maximum Limit of Stock:

Learning Objective:

1. Definite and explain maximum limit or maximum level of stock.
2. How is maximum limit or maximum level calculated?

## Definition and Explanation:

The maximum stock limit is upper level of the inventory and the quantity that must not be exceeded without specific authority from management. In other words, the maximum stock level is that quantity of material above which the stock of any item should not normally be allowed to go. This level is fixed after taking into account such factors as: capital, rate of consumption of materials, storage space available, insurance cost, risk of deterioration and obsolescence and economic order quantity.

## Formula:

Maximum level or maximum limit can be calculated by the help of following formula:

Maximum limit or level = Re-order level or ordering point – Minimum usage × Minimum re-order period + Economic order quantity

## 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
Economic order quantity 5,000 units

Calculate maximum limit or level.

In order to calculate maximum limit of stock 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

= 39,000 units

### Calculation:

 Maximum limit or level = Re-order level or ordering point – Minimum quantity used in re-order period usage + Economic order quantity = 3900 – (70 × 25) + 5,000 = 7150 units

### You may also be interested in other articles from "materials and inventory cost control" chapter.

Managerial Accounting

 ■ Introduction to Managerial Accounting ■ Business and Quality Improvement Programs ■ Cost Terms, Concepts and Classification ■ Job Order Costing system ■ Process Costing System ■ Process Costing System - Addition of Materials & Beginning Inventory ■ Controlling and Costing Materials ■ Materials and Inventory Cost Control ■ By Products and Joint Products Costing ■ Cost-Volume-Profit-Relationship ■ Variable Costing System ■ Activity Based Costing System ■ Budgeting and Planning ■ Standard Costing and Variance Analysis ■ Gross Profit Analysis ■ Linear Programming Technique ■ Segment Reporting and Transfer Pricing ■ Capital Budgeting Decisions ■ Service Department Costing ■ Cash Flow statement ■ Financial statement Analysis ■ Pricing Products and Services ■ Managerial Accounting Terms and Definitions ■ Managerial / Cost Accounting Formulas

Financial Accounting

 ■ Bookkeeping and Bookkeeping Terms ■ Accounting Principles and Accounting Equation ■ Journal ■ Ledger ■ Accounting For Bills of Exchange ■ Subdivision of Journal ■ Final Accounts ■ Capital and Revenue Items ■ Single Entry System/Accounting From Incomplete Records ■ Accounting For Non-Trading Concerns ■ Accounting for Consignment / Consignment Accounts ■ Accounting for Joint Ventures ■ Accounting for Depreciation

About us !

 Also see formula of gross margin ratio method with financial analysis, balance sheet and income statement analysis tutorials for free download on Accounting4Management.com.Accounting students can take help from Video lectures, handouts, helping materials, assignments solution, Online Quizzes, GDB, Past Papers, books and Solved problems. Also learn latest Accounting & management software technology with tips and tricks.
 Home page   Download Material   Privacy policy   Disclaimer & terms of use   Contact us   Advertise with us   About us   Useful links   Link to us Copyrights of all content on this web site are owned by Accounting For Management except where indicated in source or copyright statements. Accounting For Management must be contacted for permission to copy or redistribute any material published on this website. Copyright 2014 Accounting For Management. All rights reserved.