Homework by:

Hardeep Singh (5411453)

Use the following data about inventory items to establish ABC Prioritization and explain how you are
going to deal with each group.

Item 1 2 3 4 5 6 7 8 9 10
Average usage 50 80 15 105 55 80 80 110 22 17
(units)
Unit profit 2 10 10 12 3 5 59 6  5 11
(CAD$)

Please see below Answer on next page

Ans : Table 1 : Determination of ranks by Annual usage in CAD$

Item # Average Unit cost Annual usage Rank

usage (CAD$)
1 50 2 100 10
2 80 10 800 3
3 15 10 150 8
4 105 12 1260 2
5 55 3 165 7
6 80 5 400 5
7 80 59 4720 1
8 110 6 660 4
9 22 5 110 9
10 17 11 187 6

Table 2 : Categorizing the items in ABC Ranking

Item # Annual usage Commulative Annual usage Category

(CAD$) annual usage % assigned
 (CAD$)
7 4720 4720 55.10 A
4 1260 5980 69.92 A
2 800 6780 79.27 A
8 660 7440 86.99 B
6 400 7840 91.69 B
10 187 8027 93.86 B
5 165 8192 95.79 B
3 150 8342 97.54 C
9 110 8452 98.83 C
1 100 8552 100 C
Total 8552

Table 3 : ABC Category - Summary

Category Item # % of items in $ in the % $ in the

inventory category category
A 7,4,2 30 6780 79.27
B 5,10,6,8 40 1412 16.51
C 3,9,1 30 360 4.20
Total 10 100 8552 100
How I will deal with each group of the inventory :

Item A : These items need very strict inventory control and these must be stored
into very secure areas. A better sales forecast is needed for these goods and these
items requires frequent reorders on a daily basis or a weekly basis. The efforts
always will be made to avoid unavailbility or out of stocks these items.

Item B : These items are not much important as Items A. These items are lie
between the category A and B. So, I will monitor these items for the potential
inclusion in category A and in a contrary circumstance towards category C.

Item C : I will reorder these items only when the actually sale is made because
these goods have low in demand and have comparatively higher risk of the cost in
case of excessive inventory. When these items are in stock-out then I will reorder
these inventory.