Download Open to Buy

Understanding How The
Buyer Makes Purchasing
Decisions
Amount of money a
business has left for
purchasing goods after all
other expenses have been
considered.
Calculating Open to Buy – Step 1
P - (GR + GO) = OTB
P = Planned Purchases = $ 17,750
GR = Goods Received = $ 6,500
GO = Goods Ordered = $ 3,300
17,750 – ( 6,500 + 3, 000) = OTB
17,750 – 9,500 = 8,250
OTB at Retail Value = 8,250
Calculating Open to Buy – Step 2
Once you find the OTB at Retail Value
you must then find the OTB at Cost
Value
100% - Mark Up % = % Cost of Goods
100 – 45 = 55
55% = Cost of Goods
Calculating Open to Buy – Step 3
Cost of Goods % x OTB(Retail) = OTB(Cost)
.55 x 8,250 = 4537.50
OTB at Cost = 4537.50
Why use Open To Buy at Cost?
The Open To Buy at Cost figure represents
the actual amount of money budgeted for
making purchases.
If the buyer uses the Open To Buy at Retail
figure they will not only be spending any
profit they hope to make, but they will also
be spending the money that covers the
cost of doing business.
Why Use Open To Buy at Cost?
If the Buyer does not work Steps 1, 2 and 3
when calculating Open To Buy they will
create a serious financial problem for their
company.
When you are asked to calculate Open To
Buy you are being asked to find the “True”
Open To Buy figure which means that you
must work Steps 1, 2, and 3 to get the
correct amount.
Let’s Practice………
You are to calculate the Open To
Buy given the following
information:
Planned Purchases
$ 33,886
Goods Received $ 5,356
Goods Ordered $ 14,377
Mark Up
47%
The Answer……..
Step 1
P-(Goods Received + Goods Ordered) = OTB
33,886 - (5,356 + 14,377) = OTB/Retail
33,886 – 19,733 = 14,153
Step 2
100% - Mark Up % = Cost %
100% - 47% = 53%
Step 3
OTB/Retail x Cost % = OTB/Cost
14,153 x .53 = 7501.09
The Open to Buy 7501.09