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

Illustration of optimum cash balance, M/s Sunrise Industries estimates its ...

M/s Sunrise Industries estimates its net cash requirement at Rs. 20 million for the subsequent year. Opportunity cost fund is 15 percent per annum of the Companies. The company wil

Deferred tax assets and liabilitie, Prepare a multiple step income statemen...

Prepare a multiple step income statement, and classified balance sheet for XYZ Corporation for 2013 in good form. The income statement should include the proper earnings per share

Definition of the mission and goals of the organization , Definition of the...

Definition of the Mission and Goals of the Organization Generally the organization has already established mission and aim statements. Though, it may be essential to redefine

Ranking of decision packages , Ranking of Decision Packages The rankin...

Ranking of Decision Packages The ranking procedure is employed to establish a rank priority of decision packages in the organization. Throughout the ranking procedure managers

Explain the funded debt to total capitalization ratio, Funded debt to total...

Funded debt to total capitalization ratio The ratio establishes a link among the long term funds raised from outsider and total long term funds available in the business. The

Describe budgetary control according to brown and howard, Budgetary Control...

Budgetary Control According to brown and Howard According to brown and Howard," budgetary control is a system of controlling costs which includes the preparation of budget coor

Illustrate traditional budgeting vs zero base budgeting, Traditional budget...

Traditional budgeting vs. zero base budgeting 1) Traditional budgeting is accounting oriented. Main stress happens to be on previous level of expenditure. Zero base budgeting m

The roles of management accounting within a company., Review the roles of m...

Review the roles of management accounting within a company. 1.What is the most important role of management accounting? 2.How is that different than financial accounting? 3.What is

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