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

Batch size of one-jit features, Batch size of one Set up time is the am...

Batch size of one Set up time is the amount of time needed to adjust tools and to retool for various product. Long set ups a change over time make the production of batches wit

Project, Ask question #MRead ALL instructions before getting started! ABC ...

Ask question #MRead ALL instructions before getting started! ABC Corporation is a new company that buys and sells office supplies. Business began on January 1, 2014. Given on th

Xs strategy, X's Strategy X will like to divide his play between his ro...

X's Strategy X will like to divide his play between his rows in such a way that his expected winnings or losses when Y plays the first column will be equal to his expected winn

State material price variance, State Material price variance Difference...

State Material price variance Difference among standard price and the actual price of the material is the material price variance. This variance arises because of various facto

Jit and management accounting , JIT and Management Accounting Manageme...

JIT and Management Accounting Management accountants in many organizations have been criticized because of their failure to change their managing accounting system to reflect

Capital budgeting, A firm wants to buy a new machine and the following quot...

A firm wants to buy a new machine and the following quotation has been received. Cost of machine US$100 000 Freight and insurance US$5 000 The new machine will last for five

Capital budgeting – planning investments, Project C would involve a current...

Project C would involve a current outlay of $50,000 on equipment and $15,000 on working capital. The investment in working capital would be increased to $21,000 at the end of the f

Lowering the average ticket price by 10 percent, Airlines give away million...

Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline.

Explain the scope of cost accounting, Explain the Scope of cost accounting ...

Explain the Scope of cost accounting Scope of cost accounting: the scope of cost accounting is very wide and includes the following: 1 cost ascertainment: it deals with t

Determine the value of equipment at the current date, A company is preparin...

A company is preparing a value in use calculation for a factory building and the equipment used to make a particular product. It has prepared cash flows for the next five years fro

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