Question

As the manager of a large distribution centre, you are responsible for conducting an annual inventory count. The DC maintains 13000 SKU’s with a total value of $4,250,000.00 on the day of the inventory. Annual sales are $28,000,000.00. The ABC analysis has A items at 10% with 80% of the value, B is 10% items with 10% of the value and C items constitute the balance. Inventory carrying cost is 20%. All items are maintained on shelving designed to be picked from both sides. Items are placed on the shelves according to a random numbering system.

a. What is the carrying cost of inventory and identify 5 examples that would be included in the cost and how many inventory turns occur during the year.

b. Define the process you would use to conduct the inventory count

Answer 1

(A)

The company’s Inventory carrying cost percent = 20% Total value = $ 4,250,000   

Carrying cost of Inventory = 20% of $ 4,250,000

Carrying cost of Inventory = $ 850,000

Some examples that would be included in the cost can be capital costs, depreciation costs, warehousing costs, taxation, insurance, obsolescence and shrinkage costs.

Inventory turn = Cost of goods sold÷ average inventory

= $28,000,000.00 ÷ $850000
=33 times (approximately)

(B) For inventory counting, one can search for the item’s name or SKU and then enter the count manually in order to enable successful count. It can also be done by scanning the bar code and then entering the count of every item.