Please show work! 4, 40% of the items sold by an electronic components manufactu
ID: 372607 • Letter: P
Question
Please show work!
4, 40% of the items sold by an electronic components manufacturer in Huntsville, TX accounts for 75% of the sales. The best-selling 25% of the products are classified as A products and have a turnover ratio of 10:1. The next 30% of the products are classified to be B products and have a turnover ratio of 5:1. The remaining 45% of the products are C products and have a 2:1 turnover ratio. Total annual sales are estimated to be $10,000,000. (20 points) What is the value of the shape constant A that describes the 80-20 curve for this problem? (5 points) What is the average value of inventory (S) for the "A" products? (5 points) What is the average value of inventory (S) for the "B" products? (5 points) What is the average value of inventory (S) for the "C" products? (5 points) a. b. c. d.Explanation / Answer
1. A = X(1-Y) / (Y - X)
X = Cumulative fraction of items = 0.40
Y = cumulative fraction of sales = 0.75
A = 0.286
2. Cumulative fraction of sales for A = (1+A) * 0.25 / (A + 0.25) = 0.599 which is the fraction of total sales i.e. equal to USD 59,98,134.33. Therefore sales of A = USD 59,98,134.33
Avg value of inventory = sales / inventory turnover ratio = 5998134.33 / (10/1) = USD 599813.4
3. Cumulative fraction of sales for B = (1+A) *( 0.25 + 0.30) / (A + 0.25 + 0.30) = 0.846 which is the fraction of total sales i.e. equal to USD 8460526.32 . Therefore sales of B = 8460526.32 - 59,98,134.33 = USD 2462391.98
Avg value of inventory = sales / inventory turnover ratio = 2462391.98/ (5/1) = USD 492478.39
4. Cumulative fraction of sales for B = (1+A) * (0.25 + 0.30 + 0.45) / (A + 0.25 + 0.30 + 0.45) = 1 which is the fraction of total sales i.e. equal to USD 10000000. Therefore sales of C = 10000000 - 8460526.32 = USD 1539473.68
Avg value of inventory = sales / inventory turnover ratio = 1539473.68/ (2/1) = USD 769736.84