# How do you calculate this limit

### Limit calculation

Method of short-term planning, management and control of the procurement, storage and sale of the merchandise with the aim of an economic coordination of purchase and sales (trade controlling, assortment control). The limit calculation serves on the one hand. the achievement of a completely profit-oriented product presence, on the other hand the avoidance of capital-binding and cost-causing warehouses. Furthermore, the limit planning helps to secure the financial equilibrium of the company, since the purchaser is given purchasing budgets for his dispositions, which are limited depending on the company and sales planning. The planning of the limit, the dominant regulation of which is the inventory turnover, takes place on the basis of the target turnover, the planned trading margin, the planned average warehouse and the actual inventory. The period limit is the difference between the planned cost of goods, changes in inventory and orders that have been placed but not yet delivered. After deducting a certain limit reserve, which is intended to compensate for any deviations from the plan, the so-called free limit is obtained, which represents the purchasing budget available for the buyer. In terms of method, a distinction is made between the average storage method and the maximum storage method, which differ essentially in the calculation of the inventory values.

An example of limit planning based on the average warehouse procedure shows the following overview: Limit planning cannot prevent incorrect articles from being purchased that do not sell. In this case, it even causes a cumulative process, since limits are linked to sales: the less you convert, the lower the limit, the lower the limit, the lower the stock, the lower the stock, the lower the willingness to sell, the more the lower the willingness to sell, the lower the turnover (cf. Tietz, 1985). It is therefore advisable to differentiate between so-called living and dead stocks and to relieve the warehouse of seasonal goods and slow-moving goods at the end of the season in order to enable new limits for current goods. Another addition to the limit calculation are the flaw sales statistics, which record in how many cases customers ask for goods that are not in the range (“zero sale”) or in stock (“bad sale”).

Literature: Hanhardt, E. W., Market-fair coordination of purchasing and sales in department stores, Bern 1967. Tietz, B., Der Handelsbetrieb, Munich 1985, pp. 685-688.