(a) The maintenance department of a small manufacturing firm has responsibility for maintaining…

(a) The maintenance department of a small manufacturing firm has responsibility for maintaining inventory of spare parts for the machinery it services. The parts inventory, unit cost, and annual usage are as follows; maintaining inventory of spare parts for the machinery it services. The parts inventory, unit cost, and annual usage are as follows;

Table 3: Inventory card

Item

Annual Demand

Unit Cost ($)

A211

1200

9

B390

100

90

C003

4500

6

D100

400

150

E707

35

2000

F660

250

120

G473

1000

90

H921

100

75

The department manager wants to classify the inventory according to the ABC system but knows very little about it.

Required

Advise the department manager on how the ABC system may be applied to his inventory of the spare parts and suggest the ideal policy options for each class of inventory.