In the past, Taylor Industries has used a fi xed–time period inventory system that involved taking a complete inventory count of all items each month. However, increasing labor costs are forcing Taylor Industries to examine alternative ways to reduce the amount of labor involved in inventory stockrooms, yet without increasing other costs, such as shortage costs.

Here is a random sample of 20 of Taylor’s items.

ITEM NUMBER ANNUAL USAGE ITEM NUMBER ANNUAL USAGE 1

2 3

4 5

6 7

8 9

10

$ 1,500 12,000 2,200 50,000 9,600 750 2,000 11,000 800 15,000 11 12 13 14 15 16 17 18 19 20

$13,000 600 42,000 9,900 1,200 10,200 4,000 61,000 3,500 2,900

a. What would you recommend Taylor do to cut back its labor cost? (Illustrate using an ABC plan.)

b. Item 15 is critical to continued operations. How would you recommend it be classifi ed?