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Which is the basis of ABC analysis in inventory control?

Which is the basis of ABC analysis in inventory control? Correct Answer Annual consumption value

Concept:-

  • ABC analysis: it helps to exercise selective control when confronted. With a large number of items, it rationalizes the number of orders, number of items and reduces the inventory.
  • ABC analysis is an approach for classifying inventory items based on the items' consumption values. Consumption value is the total value of an item consumed over a specified time period, for example, a year.
  • ABC analysis: it helps to exercise selective control when confronted. With a large number of items, it rationalizes the number of orders, number of items and reduces the inventory.
    • Step 1: determine annual usage/sales for each item
    • Step 2: determine the percentage of the total usage/sale by item
    • Step 3: rank the items from highest to lowest percentage
    • Step 4: classify the items into ABC categories
  • Class A: 15% of item accounts for 70% - 80% of sales
  • Class B: 30% of items accounts for 15% - 25% of sales
  • Class C: 55% of items account for 5% of sales

Advantages of ABC analysis:

  • Facilitates inventory control and control over-usage
  • Eliminates unnecessary paperwork involved in control procedures
  • Facilitates selective control thereby freeing up management time
  • Reduces stock – holding cost
  • The company is able to concentrate on high-value items.

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What is the basis of ABC analysis in inventory control?
Which of the following inventory items is examined most frequently in the ABC inventory control system?
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2. Inventory is the part of working capital.
3. Inventory includes goods likely to be purchased in the coming months.
Which of the statements given above are correct?
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