DAT, Inc., produces digital audiotapes to be used in the consumer audio division

Question

DAT, Inc., produces digital audiotapes to be used in the consumer audio division. DAT lacks sufficient personnel in its inventory supply section to closely control each item stocked, so it has asked you to determine an ABC classification. Here is a sample from the inventory records: AVERAGE MONTHLY DEMAND ITEM PRICE PER UNIT $10.00 25.00 12.00 10.00 9.00 8.00 11.00 7.00 28.00 6.00 3,000 4,600 500 2,900 2,500 600 3,300 4,200 10 Develop an ABC classification for these 10 items Monthly Usage (S) 10

Explanation / Answer

Items contributing to more than 25% of total cost is classified as A

Items contributing to more than 2% are classified as B

Items contributing to less than 2% are classified as C

Item Monthly Use Per Unit Rate Monthy Cost Monthly cost as a percentage of total cost Classification 1 3000 10 30000 9.0% B 2 4600 25 115000 34.3% A 3 500 12 6000 1.8% C 4 300 10 3000 0.9% C 5 2900 9 26100 7.8% C 6 700 8 5600 1.7% C 7 2500 11 27500 8.2% B 8 600 7 4200 1.3% C 9 3300 28 92400 27.6% A 10 4200 6 25200 7.5% B Total 335000 100.0%

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