Problem 7-5 The following table contains data about the inventory for five items

Question

Problem 7-5 The following table contains data about the inventory for five items at Jones Corporation. Beginning Unit Inventory Ending Unit Item # Inventory Annual Unit Sales Unit Cost 400.000 65,000 110,000 450,000 75,000 1,100,000 370,000 85,000 122,000 420,000 85,000 1082,000 608,000 S18 141,000 S55 184,000 S 4 318,000 S 8 290,000S 2 Total 1,541,000 Complete an ABC analysis of the five items that Jones Corporation carries in inventory. Rank-order each item (row) based on% of Annual Sales Revenue in descending order. (Round your annual sales to the nearest dollar amount and other answers to 1 decimal place.) Annual Sales Revenue Item # Annual Sales of Sales Class Total

Explanation / Answer

Compute Annual Sales Revenue = Annual Unit Sales * Unit Cost

At the bottom all the Annual Sales Revenue of all five items.

Compute % of Annual Sales Revenue by dividing the Annual Sales Revenue of the respective item by the Total Annual Sales Revenue of all five items.

Cumulative % of Sales upto item k is equal to sum of % of Annual Sales Revenue of k items upto item k.

Items 1 and 2 with contribute 82.9% cumulative % of sales. These are classified as A class. Item 4 contribute 11.3% of sales, so it is classified as B class, and items 3 and 5 contribute 5.8%, so these are classified as C class.

Item # Annual Sales Revenue % of Annual Sales Revenue Cumulativ % of Sales Class 1 10944000 48.5% 48.5% A 2 7755000 34.4% 82.9% A 4 2544000 11.3% 94.2% B 3 736000 3.3% 97.4% C 5 580000 2.6% 100.0% C Total 22559000

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