It is used best in terms of Quantity and Quality in relation to Inventory Analysis.It is basically 'usage by value'. The cost of each item is multiplied by the number used in a given period and these are tabulated in descending value order.
PER PIECE multiply QUANTITY= VALUE---10% ( in the descending order )
It will be seen that the first 10%items account for 70% ,the next 20% will be of 20% of the value and the last 70% account for 10% of the total value. so.most stringent control is indicated at A then moderate at B and very less at C. So by ABC ANALYSIS it is possible to control inventory quite efficiently and effectively both in terms of cost control and lessening the stock -out position .
abc analyssis
abc analyssis
The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis:§ A ITEMS: very tight control and accurate records§ B ITEMS: LESS TIGHTLY CONTROLLED and good records§ C ITEMS: simplest controls possible and minimal records
The techniques of inventory control are as follows:- 1. First In First Out Method(FIFO) 2.Last In First Out Method(LIFO) 3.Highest In First Out Method(HIFO) 4.Base Stock Method 5.Simple Average Method 6.Weighted Average Method
ABC analysis classifies items based on their importance, while EOQ (Economic Order Quantity) method calculates the optimal order quantity to minimize total inventory costs. ABC analysis helps prioritize items for inventory management, whereas EOQ helps determine the quantity of each item to order to balance holding and ordering costs efficiently.
periodic inventory system
To control an inventory management system, you can set appropriate reorder points for products, conduct regular physical inventory counts to ensure accuracy, analyze sales data to forecast demand, and use inventory management software to track stock levels in real-time. Additionally, establishing clear policies and procedures for receiving, storing, and tracking inventory can help improve control over the system.
Inventory the ones you can control.
Weighted average inventory valuation method is method in which inventory purchased at any price is put together to calculate one price for allocation in contrast to FIFO or LIFO.
The GAAP method for obsolete or slow moving inventory is to account for all inventory using either market value or cost method. The method which results in the lower amount is the one that is used.
The ABC system is a simple procedure that can be used to isolate the items that require special attention in term of inventory control. The procedure calls for plotting percent of total inventory items against the percent of total euro value of these items for a given time period (usually one year). Figure 1.2.1 illustrates a typical ABC curve. The idea of the procedure is to determine the percent of items that contribute 80% of the cumulative euro value. These items are classified as group A, and they normally constitute about 20% of all the items. Class B items are those corresponding to percent euro values between 80% and 95%. They normally comprise about 25% of all the items. The remaining items constitute class C. Class A items represent small quantities of expensive items and must be subject to tight inventory control. Class B items are next in order where a moderate from of inventory control can be applied. Finally class C items should be given the lowest priority in the application of any form of inventory control. Usually, the order size of expensive class an items is expected to be low to reduce the associated capital cost. On the other hand, the other size for class C can be quite large. The ABC analysis is usually the first step that must be applied in an inventory control situation. Once the important inventory items are identified, models of the types to be presented in the succeeding sections can be used to decide on the ideal way of controlling inventory.
FIFO method is based on the actual cost of each particular unit of inventory. In this method, inventory which is purchased first is sold out first. It ensures that old inventory is not piled up in storage and most companies use this method to evaluate their inventory.