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Question 12.SP.1: David Alexander has compiled the following table of six item...

David Alexander has compiled the following table of six items in inventory at Angelo Products, along with the unit cost and the annual demand in units:

IDENTIFICATION CODE UNIT COST ($) ANNUAL DEMAND
(UNITS)
XX1 5.84 1,200
B66 5.40 1,110
3CPO 1.12 896
33CP 74.54 1,104
R2D2 2.00 1,110
RMS 2.08 961

Use ABC analysis to determine which item(s) should be carefully controlled using a quantitative inventory technique and which item(s) should not be closely controlled.

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The item that needs strict control is 33CP, so it is an A item. Items that do not need to be strictly controlled are 3CPO, R2D2, and RMS; these are C items. The B items will be XX1 and B66.

CODE ANNUAL DOLLAR VOLUME = UNIT COST × DEMAND
XX1 $7,008.00
B66 $ 5,994.00
3CPO $1,003.52
33CP $82,292.16
R2D2 $ 2,220.00
RMS $1,998.88

Total cost = $100,516.56
70% of total cost = $70,347.92

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