ABC Inventory Exercise Sells water pump, timing belt, oil filter, quart of oil Needs to improve inventory control Now you will try an exercise on your own. In this exercise you will help Earnhardt Auto-Mart classify its inventory using ABC analysis for inventory. Earnhardt only carries four products: water pumps, timing belts, oil filters and quarts of oil. They currently have a successful business but cannot seem to keep enough inventory in stock. Earnhardt wants to be able to keep enough inventory in its store without wasting a lot of capital by having too much excess inventory in its stockroom.

Product Items sold Cost per item $ Value Water Pump 10 $ 150 $ 150 Timing belt $ 50 Oil filter 50 $ 15 Oil quart 100 $ 3 Totals 170 The following is a listing of Earnhardt’s products and their cost. Now you will use the 5 steps of ABC analysis for inventory to help classify Earnhardt’s products. A step by step solution is given in the appendix to the training slides.

Product Items sold Cost per item $ Value Water Pump 10 $ 150 $ 150 Timing belt $ 50 Oil filter 50 $ 15 Oil quart 100 $ 3 Totals 170 The following is a listing of Earnhardt’s products and their cost. Now you will use the 5 steps of ABC analysis for inventory to help classify Earnhardt’s products. A step by step solution is given in the appendix to the training slides.

Step One: Determine dollar value Product Items sold Cost per item $ Value Water Pump 10 $ 150 $ 1500 Timing belt $ 50 $ 500 Oil filter 50 $ 15 $ 750 Oil quart 100 $ 3 $ 300 Totals 170 $ 3050

Step Two: Rank Items Rank Product $ Value % of $ Cum % of $ value Cum % of units Class 1 Water pump $ 1500 2 Oil filter $ 750 3 Timing belt $ 500 4 Oil quart $ 300 Totals $ 3050

Step Three: Calculate percentage of total dollar volume for each item Rank Product $ Value % of $ Cum % of $ value Cum % of units Class 1 Water pump $ 1500 49.2% 2 Oil filter $ 750 24.6% 3 Timing belt $ 500 16.4% 4 Oil quart $ 300 9.8% Totals $ 3050 100.0%

Step Four: Determine cumulative percentages Rank Product $ Value % of $ Cum % of $ value Cum % of units Class 1 Water pump $ 1500 49.2% 5.9% 2 Oil filter $ 750 24.6% 73.8% 35.3% 3 Timing belt $ 500 16.4% 90.2% 41.2% 4 Oil quart $ 300 9.8% 100.0% Totals $ 3050 4. Determine cumulative percentages for number of items and dollar volume based on totals.

Step Five: Classify items Rank Product $ Value % of $ Cum % of $ value Cum % of units Class 1 Water pump $ 1500 49.2% 5.9% A 2 Oil filter $ 750 24.6% 73.8% 35.3% B 3 Timing belt $ 500 16.4% 90.2% 41.2% C 4 Oil quart $ 300 9.8% 100.0% D Totals $ 3050