1. 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.

2. Product Items sold Cost per item $ Value Water Pump 10 $ 150$
Timing belt $
Oil filter 50 $
Oil quart
100 $
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.

3. Product Items sold Cost per item $ Value Water Pump 10 $ 150$
Timing belt $
Oil filter 50 $
Oil quart
100 $
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.

4. Step One: Determine dollar value
Product
Items sold
Cost per item
$ Value
Water Pump 10 $ $
Timing belt $ $
Oil filter 50 $ $
Oil quart
100 $ $
Totals
170 $

5. Step Two: Rank Items Rank Product $ Value % of $ Cum % of $ value
Cum % of units
Class 1
Water pump $ 2
Oil filter $ 3
Timing belt $ 4
Oil quart $
Totals $

6. 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 $
49.2% 2
Oil filter $
24.6% 3
Timing belt $
16.4% 4
Oil quart $
9.8%
Totals $
100.0%

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

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