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ABC
Classifcatio
Lecture #
9
Date:22n
Introduction
Introduction
Days of
supply
Inventory Turns
answer.
A convenient measure of how effectively
inventories
Inventory Turns
For example, if the annual cost of goods
sold is $1
million and the average inventory is
$500,000, then
Inventory
turns =$ 1,000,000 / $ 500,000
What does this
=
mean?
2 means that $500,000
At the very least, it
inventory a company is able to generate
$1 million in
with
of
sales.
If, through better materials management,
the firm is
able to increase its turns ratio to 10, the
same sales are
Days of supply
supply
is:
Days of supply=
inventory on hand /
Example of an Entry in
Trading
Account
s
Value of Stock
Value of
Actual cost
Stock
for it.
First-In-First-Out
(FIFO)
amount paid
Last-In-First-Out (LIFO)
for the last units bought.
assumes that the latest units added to stock are
used frst, so
the value of remaining stock is set by the amount
paid for the
FIFO (Example)
Exampl
e
During her frst job on
a graduate trainee
scheme, Madeleine
Fraser was given the
following record of
transactions for an
item and asked for her
views on the proft.
Solution
At
the end of June the closing
closing
stock=opening stock + purchases
stock
is:
sales
=80+(60+80)(20+40+50+20)=90
The
value of these units depends on the
units
assumption used. She does not have
enough
information to use actual costs, but she can
Solutio
FIFO:
Solutio
LIFO:
Solutio
fnds
Weighted
Average
Cost:
purchases as:
the average
cost
Total cost/units
[(80x20)+(60x30)+(80x4 (80 + 60 +
purchased
80)
0)]/
30 a unit
of all
Solution
6,600
Gross proft=5,900[6,600present value of
stock]
Solution
frst-in-frst-out: gross
proft=5,900[6,6003,500
]=2,800
last-in-frst-out: gross
proft=5,900[6,6003,100]=
2,400
weighted average cost: gross
proft=5,900[6,6002,700]=
attention.
A items are the few most expensive ones
that need
special care.
the
although
automated system might make some
ABC Analysis of
Stocks
ABC Analysis of
Stocks
Exampl
A small store
s with 10
l
categories of item has
Do an ABC
of these items. How
stocks of each category be
analysis
might
controlled?
Solutio
Step # 1
Demand
Weekly )
Step
Sort #
the2data from largest smallest
of weekl
usag
to
value
Step # 3
Calculate % of weekly usage (weekly
usage of item/
sum of weekly usage for all items)x100
Solutio
Step # 4
usage
of
preceding
items/sum
#5
Step
Step # 6
%
Step
#7
Question
Belgrave Furnishing Retail
categories
of
with
the
followingcost
Ltd has 20
and annua demands
furniture
l
:
Item Name
Questio
n
1
2
8.00
1.50
3
5
4
6
8
7
9
5,000
1,500
10,000
10.50
7,500
6,000
0.50
2.00
6,000
13.60
0.75
1.25
4,500
5,000
7,000
2.50