Question

1. Jorge, the owner of a hardware store was wondering if he could manage the inventory better. He has decided to develop an ABC classification system to help manage the inventory. The company's inventory consists of the following items:

Item	Cost	Quarterly Demand (units)
Shovel	$ 5.00	1,000
Edger	$25.00	6
Weeder	$ 6.00	400
Hose	$20.00	800
Cutters	$ 4.00	100
Sprinkler	$ 7.00	800
Hedge Trimmer	$ 5.00	5,000
Spreader	$15.00	6
Sprayer	$12.00	20
Clippers	$ 8.00	15

a.	Compute the total dollar value of each of the ten inventory items. What is the total value of all the inventory items?
b.	Which items should be declared "A" items? What percentage of total inventory value does the "A" group represent? What percentage of the total number of inventory items does the "A" group represent?
c.	Which items should be declared "B" items? What percentage of the total inventory value does "B" group represent? What percentage of the total number of inventory items does the "B" group represent?
d.	Which items should be declared "C" items? What percentage of the total inventory value does the "C" group represent? What percentage of the total number of inventory items does the "C" group represent?

Answer 1

a) The total dollar value of each inventory item is as shown below:

Item	Cost ($)	Demand	Value (Cost x Demand)	% of total value
Shovel	5	1000	5000	9.09%
Edger	25	6	150	0.27%
Weeder	6	400	2400	4.36%
Hose	20	800	16000	29.09%
Cutters	4	100	400	0.73%
Sprinkler	7	800	5600	10.18%
Hedge T	5	5000	25000	45.45%
Spreader	15	6	90	0.16%
Sprayer	12	20	240	0.44%
Clippers	8	15	120	0.22%
			55000	100.00%

Total value of all inventory items is $55000.

b) Hose and Hedge Trimmer are A category items.

Percentage of total inventory value of "A" group = 29.09% + 45.45% = 74.54%

Percentage of the total number of inventory items does the "A" group = 2/10 x 100 = 20%

c) Shovel, Weeder and Sprinkler are B category items.

Percentage of total inventory value of "B" group = 9.09% + 4.36% + 10.18% = 23.63%

Percentage of the total number of inventory items does the "B" group = 3/10 x 100 = 30%

d) Edger, Cutters, Spreader, Sprayer and Clippers are C category items.

Percentage of total inventory value of "C" group = 0.27% + 0.73% + 0.16% + 0.44% + 0.22% = 1.82%

Percentage of the total number of inventory items does the "C" group = 5/10 x 100 = 50%