jazib

ABC analysis

 In accounting, ABC stands for activity-based costing.
 In inventory or stock management, it's a method of stock control.

Its basic assumption is that not all stock is equally valuable, therefore doesn't need the same kind of attention.ABC analysis is an inventory categorisation technique, used in materials management.

ABC codes
1. "A class" inventory will typically contain items that account for 70% of total value
2. "B class" inventory will have around 20% of total value
3. "C class" inventory will account for the remaining 10%

It needs to categorise all stock according to its cost and quantity. Characteristically, a small portion of stock is the most valuable, and therefore needs maximum attention and resources - that's called 'A'. The next most valuable section of stock is B, and the next is C.

The "A class" group will typically account for a large proportion of the overall value but a small percentage of the overall volume of inventory.

Basically it shows you which stocks need more attention and which need less. It helps in utilising resources for stock management more effectively.

__________________

shafi00in

Hey Jazib,

Ur explanation about inventory management and ABC is appreciated but I really doubt whether it is what examinable in ACCA F5 Performance Management.

I may be wrong but my notion of ABC is about absorption costing and setting the right price for a product or service.

Thanks anyway. comments or suggestions accepted.

shafi

kcwoo

Absorption costing is totally different than activity based costing(abc). please get your facts right. Use ABC ,we allocate cost according to the cost pools and cost drivers while in absorption costing is just merely the fixed costs.