DAT, Inc., produces digital audiotapes to be used in the consumer audio division
ID: 386400 • 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 1 400 $ 11.00 2 4,900 22.00 3 1,200 14.00 4 1,500 15.00 5 800 5.00 6 600 4.00 7 1,700 13.00 8 2,000 3.00 9 900 6.00 10 1,300 16.00
Explanation / Answer
(a) (b) (c) Item Average monthly demand Price per unit Monthly usage [(a) x (b)] Contribution [(c)/$2,12,200] Class 1 400 $ 11 $ 4,400 2% C 2 4900 $ 22 $ 1,07,800 51% A 3 1200 $ 14 $ 16,800 8% B 4 1500 $ 15 $ 22,500 11% A 5 800 $ 5 $ 4,000 2% C 6 600 $ 4 $ 2,400 1% C 7 1700 $ 13 $ 22,100 10% A 8 2000 $ 3 $ 6,000 3% B 9 900 $ 6 $ 5,400 3% C 10 1300 $ 16 $ 20,800 10% B Total $ 2,12,200 Workings: Item Average monthly demand Price per unit Monthly usage [(a) x (b)] Contribution [(c)/$2,12,200] Percent Total Class 2 4900 $ 22 $ 1,07,800 51% 72% A 4 1500 $ 15 $ 22,500 11% A 7 1700 $ 13 $ 22,100 10% A 10 1300 $ 16 $ 20,800 10% 21% B 3 1200 $ 14 $ 16,800 8% B 8 2000 $ 3 $ 6,000 3% B 9 900 $ 6 $ 5,400 3% 8% C 1 400 $ 11 $ 4,400 2% C 5 800 $ 5 $ 4,000 2% C 6 600 $ 4 $ 2,400 1% C Total $ 2,12,200 70 % of Monthly usage = A 20% of Monthly usage = B 10% of monthly usage = C In the above table the class is described on the basis of the total value percentage to the given item. First we take the higher value items as of A category of about 70% and then around 20% to be taken as of B category and the remaining 10% shall be of C category.
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