200329 Supply Chain Management-Financial Statement Assessment Answer
The item-A passes through a four stage (echelon) supply chain. Refer the schematic Supply chain diagram presented below. Item-A is assembled in a plant, shipped to its distribution centre (plant DC) for storage and waiting for a Retailer DC’s order for supply. The retail store then places order to its Retailer DC to get the merchandise shipped.
|
1. |
Days of supply |
0 |
60 |
45 |
30 |
|
2. |
Direct material, labour and overheads to assemble (direct cost) |
$500 |
$500 |
$500 |
$500 |
|
a. |
Freight (given) |
$0 |
$75 |
$75 |
$75 |
|
c. |
Space ($0.25/sq.ft/month x20sq.ft x12 months) |
$0 |
$5 |
$5 |
$5 |
Consider the following assumptions/data:
- Inventory carrying costs begin to accrue at the plant DC
- All variable-based cost (L3.a to L3.d) value-based cost (L6.a to L6.d) must be prorated for each supply chain location based on the days of supply for that location.
- A year is 12 months =365 days
- Space cost is kept fixed in case of renting a private warehouse. That is $5 per item stored per year.
- Plant DC, retailer Dc and retailer have same space of 20 sq.ft individually.
- Variable-based cost are out of pocket expenses e.g freight expenses. It increases every time an item is moved and stored.
- Value-based expenses use total direct cost at each location. For example taxes are calculated on the basis of total variable-based cost.
Calculate the carrying cost (L11) for Plant DC, Retailer DC and Retailer. Calculate the values in the rows above to arrive at the answer.
What’s your explanation on the carrying cost for four locations
ABC Analysis and classification
|
Item code
(C1) |
Item code
(C2) |
Volume (unit)
(C3) |
Unit cost ($)
(C4) |
|
1 |
A1 |
600 |
14.17 |
|
2 |
A2 |
2000 |
0.60 |
|
3 |
B1 |
250 |
0.60 |
|
4 |
B2 |
350 |
42.86 |
|
5 |
C1 |
1000 |
12.50 |
|
6 |
C2 |
1550 |
17.00 |
|
7 |
D1 |
500 |
154.00 |
|
8 |
D2 |
100 |
8.50 |
|
9 |
E1 |
1200 |
0.42 |
|
10 |
E2 |
1000 |
90.00 |
- Complete the calculation for the columns in the table. ABC classification is based on the total dollar value of an item.
- General rule of ABC classification can be followed as 20/30/50 for A,B and C respectively. That means initial 20% will be A-category, then 30% will be B and 50% will be C-category. However your judgement will help a lot if there is a variation from the above per cent.
- Plot the graph between C9 and C10.
Answer:
| Item code | Item code | Volume | Unit cost | Dollar value ($) | Dollar value | % of total dollar value | Cumulative % dollar value | Classify as A/B/C item | Item cumulative |
| (C1) | (C2) | (C3) | (C4) | (C5)=c3 x c4 | (C6) | (C7) | (C8) | (C9) | (C10) |
| 1 | A1 | 600 | 14.17 | 8502 | 90000 | 38.78% | 90000 | B | 38.78% |
| 2 | A2 | 2000 | 0.6 | 1200 | 77000 | 33.18% | 167000 | B | 71.97% |
| 3 | B1 | 250 | 0.6 | 150 | 26350 | 11.35% | 193350 | A | 83.32% |
| 4 | B2 | 350 | 42.86 | 15001 | 15001 | 6.46% | 208351 | A | 89.78% |
| 5 | C1 | 1000 | 12.5 | 12500 | 12500 | 5.39% | 220851 | A | 95.17% |
| 6 | C2 | 1550 | 17 | 26350 | 8502 | 3.66% | 229353 | A | 98.83% |
| 7 | D1 | 500 | 154 | 77000 | 1200 | 0.52% | 230553 | A | 99.35% |
| 8 | D2 | 100 | 8.5 | 850 | 850 | 0.37% | 231403 | A | 99.72% |
| 9 | E1 | 1200 | 0.42 | 504 | 504 | 0.22% | 231907 | A | 99.94% |
| 10 | E2 | 1000 | 90 | 90000 | 150 | 0.06% | 232057 | A | 100.00% |
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