Chapter 12, Problem 2P

a)

Summary Introduction

To classify: The inventory items using ABC classification system.

Introduction:

ABC classification system:

It is an inventory method for classifying the items under three different categories as:

• A: most valuable items which accounts to 70-80 percent of annual consumption value. A-items typically account for 10-20 percent of the total inventory.
• B: intermediate items which accounts to 15-25 percent of annual consumption value. B-items typically account for 50 percent of total inventory.
• C: least valuable items which accounts to 5 percent of annual consumption value. C-items account for 30 percent of total inventory.

The classification is done for the firm to concentrate more on the critical few items rather than the trivial many items.

b)

Summary Introduction

To determine: How BI person can use the information gathered from the classification.

c)

Summary Introduction

To determine: Why BI person placed item A2 in A-class items.