Question

In: Operations Management

Determine an A-B-C classification for these items: • Which items are A, B, and C -...

Determine an A-B-C classification for these items:

•

Which items are A, B, and C - explain how you derive the answers?

Item   Unit Cost Annual volume(000)

1 300 25

2 90 30

3 30 60

4 50 10

5 15 70

6 100 40

7 10 60

Hint:

Determine the Annual Dollar Value (Unit Cost * Annual Volume) for

each item and the sum of the individual Annual Dollar Values.

Arrange the items in descending order based on Annual Dollar Values.

Then, determine the percentage of items and the percentage of Annual

Dollar Value for each category (round to two decimals). Determine the

A, B, and C items.

Solutions

Expert Solution

CONSIDERATION

ITEM A: "HIGH" dollar value and/or "LOW" inventory value.

ITEM B: "MEDIUM" dollar value and/or "MEDIUM" inventory value.

ITEM C: "LOW" dollar value and/or "HIGH" inventory value.

Total dollar value = 18150

Total inventory value = 295


ITEM

UNITS

COST/UNIT

DOLLAR VALUE

DOLLAR %

INVENTORY VALUE

CLASSIFICATION

1

25

300

7500

41.32

8.47

A

2

30

90

2700

14.88

10.17

A

3

60

30

1800

9.92

20.34

B

4

10

50

500

2.75

3.39

C

5

70

15

1050

5.79

23.73

B

6

40

100

4000

22.04

13.56

A

7

60

10

600

3.31

20.34

C

keosha answered 2 years ago
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