Operations Management
Operations Management
13th Edition
ISBN: 9781259667473
Author: William J Stevenson
Publisher: McGraw-Hill Education
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Textbook Question
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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.

Chapter 13, Problem 2P, a. The following table contains figures on the monthly volume and unit costs for a random sample of , example  1

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

Chapter 13, Problem 2P, a. The following table contains figures on the monthly volume and unit costs for a random sample of , example  2

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

a)

Expert Solution
Check Mark
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:

Operations Management, Chapter 13, Problem 2P , additional homework tip  1

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.

b)

Expert Solution
Check Mark
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:

Operations Management, Chapter 13, Problem 2P , additional homework tip  2

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.

c)

Expert Solution
Check Mark
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,

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Chapter 13 Solutions

Operations Management

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