b. Forward Thinking Limited (FTL) has used a fixed-time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs, are forcing FTL, to examine alternative ways to reduce the amount of labour involved in inventory stockrooms, yet without increasing other costs, such a shortage costs. Table 4 (below) is a random sample of 20 FTL’s items. 6 Table 4. Annual Usage by Value of a sample of FTL’s Inventory Item Number Annual Usage ($) Item Number Annual Usage ($) 1 10,700 11 2,850 2 14,100 12 1,500 3 4,100 13 3,300 4 16,100 14 2,600 5 8,200 15 110,100 6 1,900 16 14,900 7 84,100 17 9,600 8 990 18 1,800 9 1040 19 3,800 10 94,100 20 12,600 (i) What would you recommend FTL to do to cut back its labor cost? (Illustrate using an ABC plan).
b. Forward Thinking Limited (FTL) has used a fixed-time period inventory system that involved
taking a complete inventory count of all items each month. However, increasing labor costs, are
forcing FTL, to examine alternative ways to reduce the amount of labour involved in inventory
stockrooms, yet without increasing other costs, such a shortage costs. Table 4 (below) is a
random sample of 20 FTL’s items.
6
Table 4. Annual Usage by Value of a sample of FTL’s Inventory
Item Number Annual Usage ($) Item Number Annual Usage ($)
1 10,700 11 2,850
2 14,100 12 1,500
3 4,100 13 3,300
4 16,100 14 2,600
5 8,200 15 110,100
6 1,900 16 14,900
7 84,100 17 9,600
8 990 18 1,800
9 1040 19 3,800
10 94,100 20 12,600
(i) What would you recommend FTL to do to cut back its labor cost? (Illustrate using an ABC
plan).
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