What is the correct formula to determine monthly open-to-buy (OTB) dollars?

The correct formula to determine monthly open-to-buy (OTB) dollars involves assessing the resources available for purchasing additional inventory. Specifically, planning OTB at cost requires a clear understanding of what is currently on order and what is already in stock to maintain optimal inventory levels.

By using the formula that subtracts merchandise on order from the planned OTB at cost, it shows how much money remains available for further purchases after accounting for outstanding orders. This calculation ensures that the business has the necessary financial flexibility to buy new inventory while not exceeding budget limits established for that specific period. This approach is essential for effective inventory management and aligns with maintaining the right stock levels to meet customer demand.

Using the other options would not effectively calculate the monthly OTB required for operations. For example, simply subtracting total sales from total merchandise purchased does not account for inventory levels or orders, making it less effective for determining purchasing capabilities.