DAT, Inc., produces digital audiotapes to be used in the consumer audio division
ID: 326136 • Letter: D
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:
Develop an ABC classification for these 10 items.
ITEM AVERAGEMONTHLY DEMAND PRICE PER UNIT 1 600 $ 4.00 2 3,100 10.00 3 300 5.00 4 400 10.00 5 6,400 16.00 6 2,900 2.00 7 1,000 4.00 8 4,800 23.00 9 1,500 20.00 10 1,600 19.00
Explanation / Answer
Step 1: Calculate Dollar Value by multiplying the Average monthly demand by price per unit
Step 2: Sort the items in descending order (largest to smallest) of dollar value.
Step 3: Calculate for each item, dollar value as percent of total dollar value of all items.
Step 4: Cumulative (running sum) of % of Total dollar value
Step 5: Classify the top few items that make up 75% of the cumulative % of total dollar value, into A category.
The items that make up the next 20% are classified as B and the last 5% as C category
Therefore, items 8, 5 and 2 are A cateogry
Items 10 and 9 are B category and,
Items 6, 4, 7, 1 and 3 are C category
ITEM AVERAGE MONTHLY DEMAND PRICE PER UNIT DOLLAR VALUE 1 600 4 2,400 2 3,100 10 31,000 3 300 5 1,500 4 400 10 4,000 5 6,400 16 102,400 6 2,900 2 5,800 7 1,000 4 4,000 8 4,800 23 110,400 9 1,500 20 30,000 10 1,600 19 30,400Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.