Things are working out very well in your positon as a logistics analyst/manager at LUML. For at least the next few months (until the end of the term!) you have no plans to change jobs or to even actively look for a new positon.
There are three parts. Be sure to answer all three!
Part 1
It turns out that LUML has 10 items in the inventory. The following summarizes the basic information on these items.
Stock # Annual volume \$ Unit cost
#01036 100 8.50
#01307 1,200 .42
#10286 1,000 90.00
#10500 1,000 12.50
#10752 250 .60
#10867 350 42.86
#11526 500 154.00
#12572 600 14.17
#12760 1,550 17.00
#14075 2,000 .60

You are asked to develop an ABC analysis of this inventory. (Hint: keep in mind that we have covered two “ABC’s”. This one deals with stratifying an inventory. The other ABC dealt with cost, right?)
You ask the manager if there are any company rules or policies for determining the categories (A, B, or C). The answer is “Huh?”. You correctly deduce that you are pretty much on your own.
For each question, show your work and explain the computation.

Each question/answer is worth 10 points with 2 points for the work.

Q1. Using the annual cost as the basic analysis, prepare an ABC analysis.
Q2. How many items are in each category (A, B, and C)?
Q3. What proportion of the annual cost is in each category (A, B, and C)?
Q4. What proportion of the annual volume is in each category (A, B, and C)?
Q5. Briefly explain your rationale for deciding on the cutoff point for each category.
Q6. The price for #10286 increases to \$120.00.
Q6a. What happens to the total inventory value?
Q6b. How does this change your analysis, if any?
Q7. What are two other ways that we might have used to stratify the inventory into ABC?

Part 2.
Today is September 30, 2014. It is 10 AM. Tom was working on a project to brief the CEO this afternoon at 3 PM when he suddenly became sick. Your boss recognizes the great job that you did on the ABC analysis, and volunteers your services to help prepare the briefing.
Alas, your great PowerPoint skills are not what are in demand. What is needed is your analytical skill.

Luckily, Tom has been keeping some fairly good records that you find in a binder on his desk.
2014 Actual Sales in units
Jan 6,500
Feb 5,950
March 6,340
April 7,010
May 6,650
June 6,520
July 6,000
Aug 7,030
Sep 7,050
Oct
Nov
Dec

Each question is worth 10 points indicated.
Q1. (10 points) Using a simple moving average of the last three months, what is the forecast for October sales in units?
Q2. (5 points) The sales price per unit is \$125. What is the revenue forecast for October sales in \$ terms?

During the briefing you earn accolades for your quality work on short notice (an ‘attaboy’ or ‘attagirl’). However, the CEO says that she doesn’t feel that all three months should count equally. She thinks that the most recent month should be 60 percent; the previous month would be about 30 percent; and the other month the balance.

“Get back to me with a brief memo with the revised sales forecast in units and dollar terms. Ok?” Of course, the “ok” is rhetorical.

Answer Q3 and Q4 in a brief memo to the CEO.
Q3. (10 points) What is the revised sales forecast in unit terms? Briefly explain your work
Q4. (5 points) What is the revised forecast in dollar terms? Briefly explain your work.

Fast-forward to the end of October 2014. Because the company had planned on using these metrics it is very easy and fast to get the needed reports in an hour or less. You get an email saying that the actual October sales were 6,950.
In a short memo to the CEO answer the following:
Q5. (5 points) What was the difference between the October sales forecast and the October actual sales?
Q6. (5 points) Why might there have been a difference between the projection and the actual? (Hint: stick to the facts. Don’t assume too many unusual scenarios. For example, it is unlikely that the Pod-People-landed-on-Earth-and-influenced-the-demand-for-our-lamps.)
Q7. (10 points) What is the November sales forecast in units using a four month simple moving average?
Q8. (5 points) What is the November sales forecast in dollar terms using a simple moving average?
Q9. (10 points) What is the November sales forecast in unit terms using a weighted average of the most recent month = 35%; then 30%; then 20%; and fourth month is the balance?
Q10. (5 points) What is the November sales forecast in dollar terms using the weighted average?

Part 3
(20 points each topic – ABC and sales)
In a memo to the CEO (two pages max), as a logistician outline the pro’s and con’s of the usefulness of forecasting sales; and managing inventory using an ABC classification methodology.
Include how these might also help the overall operations of the entire organization.
And be sure to include an overall assessment of each (i.e., ABC and forecast).

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