Abc analysis-pareto analysis, Managerial Accounting

Assignment Help:

ABC Analysis (Pareto Analysis)

In ordinary parlance, ABC analysis can be best compared with our class society where the population is categorized into Top, Middle and Lower classes. In the case of inventories also, it has been noticed that out of a large number of items (in a million-tonne capacity steel plant there would be usually about 50,000 items of inventory of various types) that are generally held in stock, some of the items are quite significant whereas the others are not that important. Through ABC plan which is in fact an analytical approach based on common statistical techniques, the relative importance of the various items is established for the purpose of individual scrutiny and subsequent control. Through this technique `VIP' or the `privileged few' and the `trivial many' are distinguished and treated as such.

ABC analysis contemplates to classify all the inventory items in a number of categories, generally in three categories based on their values. Items of high value though small in number are classified as `A' items which would be under a strict control. `C' items symbolize relatively small value items and would be under simple control. Items of moderate value and size are classified as `B' items and would attract reasonable attention of the management. As this plan concentrates attention on the basis of the relative significance of the various items of inventory, it is also termed as `control by importance and exception'. As items are classified in order of their relative importance in terms of value, it is also known as the `proportional value analysis'.

It has been found that normal inventory items in most organizations show the following distribution pattern:

A —5 to 10% of total number of items account for about 70% of the total consumption value.  These items may be called "A" items.

B —10 to 20% account for 20% of total consumption value.

C —the remaining large number of items account for the balance of 15% of the consumption value.


Related Discussions:- Abc analysis-pareto analysis

Dynamic programming, Dynamic programming It is an extension which finds...

Dynamic programming It is an extension which finds solutions to problems involving a number of decisions which have to be made sequentially. For example, the amount of a produc

Explain the features of budgetary control, Explain the Features of budgetar...

Explain the Features of budgetary control From the definition the following features of budgets control emerge: 1) Establishment of budgets: budgets are prepared for each

Evaluate average duration of the production run, A manufacturing  company ...

A manufacturing  company  needs  2500 units  of a particular component every  year. The  company buys  it at the rate of Rs. 30 per  unit.  The order processing cost for this part

FINAL ACCOUNTS- FINANCIAL STATEMENTS, Yolande Tzar came to Northern Ireland...

Yolande Tzar came to Northern Ireland from Poland five years ago to study at university. After graduating she worked as a sales manager for a local company and saved her wages to b

Hold-up problem or another problem, According to the Philadelphia Inquirer,...

According to the Philadelphia Inquirer, in 2004 the city of Philadelphia planned to spend $14 million to convert the Convention Center into an appropriate venue for the Republican

Management accounting , Management Accounting 1) Which is concerned wi...

Management Accounting 1) Which is concerned with provision of information to people within the organization to help them make better decisions? Management accounting is concer

Q, Granger products had the following transactions for the just completed m...

Granger products had the following transactions for the just completed month. The company had no beginning inventories. a)$75,000 in raw materials were purchased for cash. b) $7

How much was Topaz’s operating income (income before taxes), How much was T...

How much was Topaz’s operating income (income before taxes) last year?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd