Algro Inc. keeps a wide range of parts and materials on hand for use in its production processes. Management has recently had difficulty managing parts inventory as demand for its finished goods has increased; they frequently run out of some critical parts while having an endless supply of others. They would like to classify their parts inventory according to the ABC approach to better control inventory. The following is a list of parts, along with their annual usage and unit value: Item Annual Unit Item Annual Unit Number Usage Cost Number Usage Cost 1 36 $350 2 510 30 3 50 23 300 45 5 18 1900 6 500 8 7 710 4 8 80 26 9 344 28 10 67 440 11 510 2 12 682 35 13 95 50 14 10 3 15 820 1 126222222222222 60 $610 17 120 20 18 270 15 19 45 50 20 19 3200 910 3 12 4750 23 30 2710 24 24 1800 25 870 105 244 30 27 750 15 28 45 110 29 46 160 30 165 25 a. Classify the inventory items according to the ABC approach using the dollar value of annual demand. b. Clearly explain why you classified items as A, B or C. c. Draw a Pareto chart to show the classification of the items.
Algro Inc. keeps a wide range of parts and materials on hand for use in its production processes. Management has recently had difficulty managing parts inventory as demand for its finished goods has increased; they frequently run out of some critical parts while having an endless supply of others. They would like to classify their parts inventory according to the ABC approach to better control inventory. The following is a list of parts, along with their annual usage and unit value: Item Annual Unit Item Annual Unit Number Usage Cost Number Usage Cost 1 36 $350 2 510 30 3 50 23 300 45 5 18 1900 6 500 8 7 710 4 8 80 26 9 344 28 10 67 440 11 510 2 12 682 35 13 95 50 14 10 3 15 820 1 126222222222222 60 $610 17 120 20 18 270 15 19 45 50 20 19 3200 910 3 12 4750 23 30 2710 24 24 1800 25 870 105 244 30 27 750 15 28 45 110 29 46 160 30 165 25 a. Classify the inventory items according to the ABC approach using the dollar value of annual demand. b. Clearly explain why you classified items as A, B or C. c. Draw a Pareto chart to show the classification of the items.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Algro Inc. keeps a wide range of parts and materials on hand for use in its production
processes. Management has recently had difficulty managing parts inventory as demand
for its finished goods has increased; they frequently run out of some critical parts while
having an endless supply of others. They would like to classify their parts inventory
according to the ABC approach to better control inventory. The following is a list of
parts, along with their annual usage and unit value:
Item
Annual Unit
Item
Annual
Unit
Number
Usage
Cost
Number
Usage
Cost
1
36
$350
2
510
30
3
50
23
300
45
5
18
1900
6
500
8
7
710
4
8
80
26
9
344
28
10
67
440
11
510
2
12315
682
35
95
50
14
10
3
820
1
KARAN2222222222
16
60
$610
17
120
20
18
270
15
19
45
50
20
19
3200
21
910
3
12
4750
23
30
2710
24
24
1800
25
870
105
26
244
30
27
750
15
28
45
110
29
46
160
30
165
25
a. Classify the inventory items according to the ABC approach using the dollar
value of annual demand.
b. Clearly explain why you classified items as A, B or C.
c. Draw a Pareto chart to show the classification of the items.
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