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

Gathering data-plotting graph-cost estimating relationship, Gather data con...

Gather data concerning the relationship among the dependent and independent variables Collecting data is generally the most hard and time-consuming element of CER development.

Cost behaviour, How costs behave as the level of activity/volume changes.  ...

How costs behave as the level of activity/volume changes.  Why an understanding of cost behaviour is important ? Types Variable e.g. petrol, direct materials Fixed e.g.

Determine the creditors turnover ratio, Creditors turnover ratio ( or payab...

Creditors turnover ratio ( or payables turnover ratio) Meaning: this ratio establishes a relation ship between net credit purchases and average trade creditors. Objective

The cost per equivalent whole unit, During the year Leyland Company complet...

During the year Leyland Company completed 1,300 units of product. Ending inventory consisted of 400 units that were 50% complete. The total dollar cost associated with production o

Collection policy, Exact management of receivables acquires a suitable coll...

Exact management of receivables acquires a suitable collection policy that outlines the collection procedures. Collection policy consider as the procedure adopted through a firm to

The f–test , The F–test    The significance of the regression results...

The F–test    The significance of the regression results can be tested by using the F- statistics. The F-statistics is a ratio which compares the explained sum of squares and t

Transfer pricing-performance evaluation, Transfer Pricing and Performance E...

Transfer Pricing and Performance Evaluation Transfer pricing is simple in concept and yet complex in implementation. It provides a divisional output valuation where output from

What is production cost, What is Production cost It begins with the sup...

What is Production cost It begins with the supplying of materials, labour and services and ends with the primary packing of the product. Therefore, it includes the cost of d

State the steps for standard costing system, State the steps for Standard c...

State the steps for Standard costing system standard costing system involves the following steps 1) Setting-up of standards for each element of cost: standards should be s

How can we draw a break even chart, How can we draw a break even chart ...

How can we draw a break even chart Under this method the variable cost line is drawn first and then fixed cost line is drawn over and parallel to the variable cost line. The fi

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