Question

MAQ Corporation, a major producer of consumer electronics equipment, is currently faced with a rapidly growing product line and its associated inventory problems. MAQ’s president, Mary Semerod, has decided to initiate a program to analyze the company’s inventory requirements, utilizing different inventory techniques. The first phase of this program consists of an ABC analysis of the company’s product line (shown in the table below).

Sales Data (One-Year Period)
Product #	Units Sold	Price Per Unit	Profit Per Unit
SR101	14,500	#250	$50.50
SR103	750	2,000	330.00
SR105	1,600	600	270.00
SR201	30	2,250	877.50
SR203	10	3,000	1,750.00
SR205	9,250	500	125.00
SR301	1000	650	195.00
SR303	550	700	196.00
SR305	3,000	920	100.00
SR500	100	1,100	440.00

Note that these values vary from those given in text.

     Ms. Semerod needs professional advice concerning the appropriate criteria to use in the classification of their inventory, as well as in developing appropriate cutoff levels for each class of inventory (A, B, and C).   To solve this dilemma, Ms. Semerod has contracted the service of your logistics consulting firm to perform the inventory analysis.

    In particular, MAC Corporation has hired your firm to classify their inventory in two ways: by revenue, and by profit. For each, they have asked you to rank their products from most important to least important, then identify which products fall within each of the three categories.   For each criteria, present a table of calculations, then explain your calculation approach.

   Conclude your analysis by making a recommendation to Ms. Semerod as to which of the two inventory classification criteria would be the best to use by MAQ, and explain your reasons for your recommendation.

    Ms. Semerod will be expecting your report in the form of an executive memo, due to her office by March 18, 2018.

Answer 1

MAC Corporation- Classification basis Profit Per unit
Product #	Units Sold	Profit Per Unit	Profit on units sold	% Profit on units sold	Cummulative % Profit on units sold	Classification
SR205	9,250	$    125.00	$1,156,250.00	35%	35%	C
SR101	14,500	$      50.50	$732,250.00	22%	58%	C
SR105	1,600	$    270.00	$432,000.00	13%	71%	C
SR305	3,000	$    100.00	$300,000.00	9%	80%	C
SR103	750	$    330.00	$247,500.00	8%	88%	B
SR301	1000	$    195.00	$195,000.00	6%	94%	B
SR303	550	$    196.00	$107,800.00	3%	97%	B
SR500	100	$    440.00	$44,000.00	1%	99%	A
SR201	30	$    877.50	$26,325.00	1%	99%	A
SR203	10	$1,750.00	$17,500.00	1%	100%	A
			$3,258,625.00
MAC Corporation- Classification basis Price Per unit
Product #	Units Sold	Price Per Unit	Annual Value	Annual Value %	Cummulative Annual Value %	Classification
SR205	9,250	$    500.00	$4,625,000.00	31%	31%	A
SR101	14,500	$    250.00	$3,625,000.00	25%	56%	A
SR305	3,000	$    920.00	$2,760,000.00	19%	75%	A
SR103	750	$2,000.00	$1,500,000.00	10%	85%	B
SR105	1,600	$    600.00	$960,000.00	7%	92%	B
SR301	1000	$    650.00	$650,000.00	4%	96%	B
SR303	550	$    700.00	$385,000.00	3%	99%	C
SR500	100	$1,100.00	$110,000.00	1%	99%	C
SR201	30	$2,250.00	$67,500.00	0%	100%	C
SR203	10	$3,000.00	$30,000.00	0%	100%	C
	$30,790.00		$14,712,500.00