following table contains figures on the monthly volume and unit costs for a rand

Question

following table contains figures on the monthly volume and unit costs for a random sample df 16 items from a list of 2,000 inventory items at a health care facility: 2· The Unit Cost Usage Item Unit Cost Usage 20 $10 25 36 16 20 80 20 D45 D48 D52 D57 N08 Po5 P09 12 15 40 30 16 60 550 90 110 120 150 25 80 M10 M20 Z45 F14 F95 a. Develop an A-B-C classification for these items. b. How could the manager use this information? c. After reviewing your classification scheme, suppose that the manager decides to place item Pus into the A category. What are some possible explanations for this decision?

Explanation / Answer

a) A-B-C classification

Step 1: Compute dollar value of annual usage

Step 2: List the items in descending order of dollar value.

Step 3: Calculate % value of total

Step 4: Top 73% items by dollar value are classified as A class, next 18% as B class and remaining as C class.

b) Manager can use this information to design the inventory control of items. A class items are high value and therefore require tighter inventory control. B class items require slightly less close monitoring and the C class the least.

c) The explanation for this decision is that the annual dollar inventory value of this item is 8.5%, which is substantially large and hence this should be placed in A class.

Item Unit Cost Usage Value K34 10 200 2,000 K35 25 600 15,000 K36 36 150 5,400 M10 16 25 400 ,20 20 80 1,600 Z45 80 200 16,000 F14 20 300 6,000 F95 30 800 24,000 F99 20 60 1,200 D45 10 550 5,500 D48 12 90 1,080 D52 15 110 1,650 D57 40 120 4,800 N08 30 40 1,200 P05 16 500 8,000 P09 10 30 300

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