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CA Intermediate · Cost and Management Accounting · Material Cost

Which statement about the ABC (Always Better Control) analysis of inventory is correct?

In ABC analysis, category A items are few in number but account for a high share of consumption value, so they receive the tightest control. Category C items are numerous but low in value. Classification by movement speed is FSN analysis, not ABC.

  1. ACategory A items are large in number but low in value, so they need only periodic review
  2. BCategory A items are few in number but high in value, so they need the tightest controlCorrect
  3. CCategory C items need the closest control because they form most of the inventory value
  4. DABC analysis classifies items by their rate of movement, as fast, slow and non-moving

Explanation

ABC analysis classifies items by value of consumption. A items are few but account for a large share of value, so they get tight control. Option A and C reverse the classes, and option D describes FSN analysis.

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