Questions · Q11
Q.What is ABC Analysis of inventory? State how the three categories are controlled.
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Start your 14-day free trial to unlock the full solution →ABC Analysis is a technique of selective inventory control that classifies materials into three categories — A, B and C — on the basis of their annual usage VALUE (quantity used × price), so that management effort is concentrated on the items where the money is tied up. It follows the principle of 'control by importance and exception'.
| Category | Typical share of items | Typical share of value | How it is controlled |
|---|---|---|---|
| A | Small (≈10%) | Large (≈70%) | Very tight control — low stock, frequent ordering (near EOQ), close monitoring, careful records |
| B | Moderate (≈20%) | Moderate (≈20%) | Moderate, routine control and ordering |
| C | Large (≈70%) | Small (≈10%) | Loose, bulk control — large orders, simple records, two-bin method |
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