CMA Intermediate · Cost Accounting · Material Costs
A firm uses the ABC technique of inventory control. Which feature correctly describes the 'A' category items?
A-category items are high value items that make up a small percentage of the total number of items. Because they account for most of the consumption value, they need tight control, frequent review and close monitoring. Low value, numerous items belong to category C.
- AHigh value items forming a small percentage of the total number of items, needing tight controlCorrect
- BLow value items forming a large percentage of the total number of items, needing minimal control
- CItems that are consumed only once a year, irrespective of their value
- DItems that are obsolete and awaiting disposal
Explanation
In ABC analysis, A items account for a large share of total consumption value but a small share of the number of items, so they get the closest control. Option B describes C items. Consumption frequency and obsolescence are not the basis of ABC classification.
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