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CA Intermediate · Cost and Management Accounting · Material Cost

Which of the following is a feature of the VED analysis technique of inventory control?

VED analysis classifies items by how critical they are to production: Vital, Essential or Desirable. It is not based on consumption value, which is ABC analysis, nor on turnover or movement, which is FSN analysis, nor on the place of supply.

  1. AItems are classified by their annual consumption value
  2. BItems are classified by how critical they are to production, such as Vital, Essential and DesirableCorrect
  3. CItems are classified by the rate of their movement or turnover
  4. DItems are classified by the source of their supply, local or imported

Explanation

VED analysis classifies stores items by criticality: Vital items stop production if unavailable, Essential items cause some loss, and Desirable items have little effect. Classification by consumption value is ABC analysis, and classification by movement rate is FSN analysis.

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