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CA Intermediate · Financial Management and Strategic Management · Management of Inventory

Under the ABC system of inventory control, items are classified as 'A' items when they:

A items are those that make up a high proportion of total annual consumption value while being only a small proportion of the number of items. They therefore deserve the closest control, whereas C items are numerous but low in value and need only simple controls.

  1. AAccount for a high share of annual consumption value but a small share of the number of itemsCorrect
  2. BAccount for a large share of the number of items but a small share of consumption value
  3. CAre the most frequently purchased items irrespective of their value
  4. DAre kept in the smallest quantities because they are the cheapest

Explanation

ABC analysis ranks items by annual consumption value. A items are few in number but represent the bulk of the value, so they get tight control. The second option describes C items, which are many in number but low in value.

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