Which of the following best describes category ‘A’ in ABC analysis in inventory management?

Which of the following best describes category ‘A’ in ABC analysis in inventory management?
A . Items that represent approximately 15% of total value
B . Items with low uncertainty
C . Items with high values
D . Items with high uncertainty

View Answer

Answer: C

Explanation:

ABC classifications are applied to stock and its management is based loosely on the Pareto principle, better known as the 80/20 rule.

The likely outcome of analysis of inventory (value importance):

– Category A – about 20% of the stock items account for about 80% of the total inventory value. Items in category A have the highest value.

– Category B – about 30% of items account for about 15% of total inventory value

– Category C – the remaining 50% of items account for 5% of the total inventory value

Reference: CIPS study guide page 91-95

LO 2, AC 2.1