MAQ Corporation, a major producer of consumer electronics equipment, is currently faced with a rapidly growing product line and its associated inventory problems. MAQ's president, Mary Semerod, has decided to initiate a program to analyze the company's inventory requirements utilizing different inventory techniques. The first phase of this program consists of an ABC analysis of the company's product line (shown in the following table). Ms. Semerod has encountered difficulties in deciding on the appropriate criteria to use in the classification and in developing appropriate cutoff levels for each class of inventory. To solve her dilemma, Ms. Semerod has contracted the services of a logistics consulting firm to perform the inventory analysis.

a. If you were employed by the consulting firm, how would you construct your method of analysis?
b. What criteria would you use?
c. What would the cutoff levels be? Be sure to provide explanations of the reasoning supporting your decisions.

Transcribed Image Text:

SALES DATA (ONE-YEAR PERIOD) PRODUCT # UNITS SOLD PRICE PER UNIT PROFIT PER UNIT SR101 $250 15,000 $50.50 750 1,500 SR103 330.00 1,600 600 90.00 SR105 45 2,250 SR201 877.50 10 3,500 SR203 1,750.00 9,250 500 SR205 125.00 700 650 SR301 195.00 550 700 SR303 196.00 920 3,000 SR305 303.60 100 1,100 SR500 440.00