Question

Storage Craft Inc., a cabinet manufacturer, employs ABC analysis to define their inventory value. The inventory contains wood, copper, adhesive, and carbon fiber. If carbon fiber accounts for 10 percent of the items and 55 percent of the total dollar value; adhesive accounts for 50 percent of the items and 7 percent of the total dollar value; copper accounts for 25 percent of the items and 18 percent of the total dollar value; and wood accounts for 15 percent of the items and 20 percent of the total dollar value, ________ can be classified as a class C item.

Answer 1

Answer:

Storage Craft Inc.

__Adhesive___ can be classified as a class C item.

Explanation:

a) Data and Calculations:

Inventory:

                                            Carbon Fiber   Adhesive  Copper  Wood  Total

Inventory content:

Percentage of the items            10%              50%          25%     15%    100%

Percentage of the dollar value 55%                7%           18%     20%    100%

b) With Activity-based Costing Method, a class C item is one that has the lowest consumption value. This class constitutes a relatively high proportion of the total number of items but has a relatively low proportion of the total dollar value.  In this scenario, Adhesive has 50% of the inventory items but 7% of the dollar value.  Thus, Adhesive is a class C item.