CA Intermediate · Financial Management and Strategic Management · Management of Inventory
In inventory management, the ABC system of control classifies items mainly on which basis?
ABC analysis classifies inventory items on the basis of the value of their annual consumption. A few high-value items (A) receive tight control, while many low-value items (C) receive simple control, so management effort is concentrated where the financial impact is greatest.
- AOrder frequency of the item
- BValue of annual consumption of the itemCorrect
- CLead time required for delivery
- DShelf life of the item
Explanation
ABC analysis ranks items by the rupee value of annual usage. A items are few in number but high in value and get tight control. Lead time or frequency is not the classification basis; those relate to other techniques.
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