Chapter 13, Problem 2P

a. The following table contains figures on the monthly volume and unit costs for a random sample of 16 items from a list of 2,000 inventory items at a health care facility. Develop an A-B-C classification for these items.

b. Given the monthly usages in the following table, classify the items in A, B, and C categories according to dollar usage.

C. Determine the percentage of items in each category and the annual dollar value for each category for pan b.

Summary Introduction

To determine: ABC classification for the items.

Introduction: Inventory is a stock or store of goods. Every company store lots of goods as inventory which will be used during replenishment periods. Management of inventory is so much essential to manage cost and also to reduce cost.

Answer to Problem 2P

ABC classification of items is shown in table 1.

Explanation of Solution

Given information:

Item	Unit Cost	Usage
K34	$10	200
K35	25	600
K36	36	150
M10	16	25
M20	20	80
Z45	80	200
F14	20	300
F95	30	800
F99	20	60
D45	10	550
D48	12	90
D52	15	110
D57	40	120
N08	30	40
P05	16	500
P09	10	30

Calculation for ABC classification:

Step 1: Calculation of annual dollar value

Item	Unit Cost	Usage	Annual dollar value
K34	$10	200	$2,000
K35	25	600	$15,000
K36	36	150	$5,400
M10	16	25	$400
M20	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
		Total	$94,130

The annual dollar value is the product of unit cost and annual volume. For K34, the product of $10 and 200 gives $2,000 which is the dollar value for K34 and same procedure is followed for others items and the sum accounts to $94,130.

Step 2: Classification of items

Item	Unit Cost	Usage	Annual dollar value	Category	Percentage of items	Percentage of annual dollar value
F95	30	800	$24,000	A	18.75%	58.43%
Z45	80	200	$16,000
K35	25	600	$15,000
P05	16	500	$8,000	B	31.25%	31.55%
F14	20	300	$6,000
D45	10	550	$5,500
K36	36	150	$5,400
D57	40	120	$4,800
K34	$10	200	$2,000	C	50.00%	10.02%
D52	15	110	$1,650
M20	20	80	$1,600
F99	20	60	$1,200
N08	30	40	$1,200
D48	12	90	$1,080
M10	16	25	$400
P09	10	30	$300
		Total	$94,130

Table 1

Excel Worksheet:

The items are classified based on their percentage of dollar value where 10-15% are classified as A items and 50% are classified as B items and lowest value are classified as C item which is shown in table 1.

Hence, ABC classification of items is shown in table 1.

Summary Introduction

To determine:ABC classification for the items.

Introduction: Inventory is a stock or store of goods. Every company store lots of goods as inventory which will be used during replenishment periods. Management of inventory is so much essential to manage cost and also to reduce cost.

Answer to Problem 2P

ABC classification of items is shown in table 2.

Explanation of Solution

Item	Usage	Unit Cost
4021	90	$1,400
9402	300	12
4066	30	700
6500	150	20
9280	10	1,020
4050	80	140
6850	2,000	10
3010	400	20
4400	5,000	5

Given information:

Calculation for ABC classification:

Step 1: Calculation of annual dollar value

Item	Usage	Unit Cost	Annual dollar value
4021	90	$1,400	$126,000
9402	300	12	$3,600
4066	30	700	$21,000
6500	150	20	$3,000
9280	10	1,020	$10,200
4050	80	140	$11,200
6850	2,000	10	$20,000
3010	400	20	$8,000
4400	5,000	5	$25,000
		Total	$228,000

The annual dollar value is the product of unit cost and annual volume. For item 4021, the product of 90 and $1400 gives $126,000 which is the dollar value for item 4021 and same procedure is followed for others items and the sum accounts to $228,000.

Step 2: Classification of items:

Item	Usage	Unit Cost	Annual dollar value	Category	Percentage of items	Percentage of annual dollar value
4021	90	$1,400	$126,000	A	11.11%	55.26%
4400	5,000	5	$25,000	B	33.33%	28.95%
4066	30	700	$21,000
6850	2,000	10	$20,000
4050	80	140	$11,200	C	55.56%	15.79%
9280	10	1,020	$10,200
3010	400	20	$8,000
9402	300	12	$3,600
6500	150	20	$3,000
		Total	$228,000

Table 2

Excel Worksheet:

The items are classified based on their percentage of dollar value where 10-15% are classified as A items and 50% are classified as B items and lowest value are classified as C item which is shown in table 2.

Hence, ABC classification of items is shown in table 2.

Summary Introduction

To determine: The percentage of items in each category and their respective annual dollar value.

Introduction: Inventory is a stock or store of goods. Every company store lots of goods as inventory which will be used during replenishment periods. Management of inventory is so much essential to manage cost and also to reduce cost.

Answer to Problem 2P

The percentage of items in each category and their respective annual dollar value is shown in table 2.

Explanation of Solution

Given information:

Item	Unit Cost	Usage
K34	$10	200
K35	25	600
K36	36	150
M10	16	25
M20	20	80
Z45	80	200
F14	20	300
F95	30	800
F99	20	60
D45	10	550
D48	12	90
D52	15	110
D57	40	120
N08	30	40
P05	16	500
P09	10	30

Percentage of items in each category and their respective annual dollar value:

The percentage of items in each category and their respective annual dollar values are computed and shown in the classification table which is table 2.

Hence, the percentage of items in each category and their respective annual dollar value is shown in table 2,