Abc analysis-pareto analysis, Managerial Accounting

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.

Posted Date: 12/6/2012 6:47:29 AM | Location : United States







Related Discussions:- Abc analysis-pareto analysis, Assignment Help, Ask Question on Abc analysis-pareto analysis, Get Answer, Expert's Help, Abc analysis-pareto analysis Discussions

Write discussion on Abc analysis-pareto analysis
Your posts are moderated
Related Questions
Full Service Recourse Factoring : In this kind of factoring the client has to bear the risk of default made through the debtors. There the factor had advanced funds against book de

The advantages and disadvantages of standard costing The benefits for controlling having a standard costing system in operation can be summed up as follows; Cautiously pl


Transfer pricing with third party consequences Transfer prices are used not only for internal record keeping and performance evaluation purposes. There are several settings

Imposed Budgets In this approach to budgeting, top management prepares a budget with little or no help from operating personnel, which is then obligatory upon the employees who

Limitation of break even charts Despite many advantages a break even chart suffers from the following limitations: 1) A break even chart is based upon a number of assumption

Introduction to Performance Evaluation Performance evaluation deals with the area of MA that is concerned with: 1) Holding individual managers responsible for certain aspect

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

Selective Inventory Management The inventory of an industrial firm generally comprises thousands of items with diverse prices, usage and lead time, as well as procurement and/o

Multi-collinearity Multiple regression analysis is based on the assumption that the independent variables are not correlated with each other, whenever the independent variables