Page 74 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes Table of Items and Value

Group No. of Items % of Items Value ` % of Value
A 320 8% 15,00,000 75%
B 1,000 25% 4,00,000 20%
C 2,680 67% 1,00,000 5%
Total 4,000 100% 20,00,000
The importance of the analysis is exercising the control on the inventory.

Did u know? How is the control of the inventory being exercised?

z z Group A items are high valued items among the other items of the enterprise,
requiring greater monitoring and controlling.

z z Group B items are comparatively lesser in value among the three items given next to
the Group A, require less rigid control and monitoring.
z z Group C items are the major volume of items among the 4,000 items of the enterprise
which are least in value, need very little control and monitoring.

Example: The following shows the control of inventory on A, B and C items of the
enterprise:

Group No. of Items Level of Control % of Items Value ` % of Value
A 320 Rigid Control 8% 15,00,000 75%
B 1,000 Moderate Control 25% 4,00,000 20%
C 2,680 Very little Control 67% 1,00,000 5%
From the above table, it is obviously seen that the items which have greater percentage (75%) in
the total value require rigid control than any other quantity of materials. The Group C items bear
67% of total consumption amount to 5% of total value of the items procured by the enterprise.
The unique features of the ABC analysis:

Nature A Group of Items B Group of Items C Group of Items
Level of Control Rigid control Moderate control Very little control
Order frequency Frequency of ordering- Once in 2 months Once in 6 months
weeks, fortnights
Lead time To be cut off drastically To be reduced moderately Lead time problem due to
problem clerical should be cut off
Safety stock level Due to greater value least Due to moderate value- Due to lower value higher
volume of safety stock is lesser safety stock is safety stock is required
to be maintained required
System of Higher value demands Moderate value Lower value needs
purchase centralized system of requires centralized and decentralized system of
procurement decentralized system of purchase
purchase
Supervision By Senior officers By Middle level managers By clerical staff

Advantages

1. It guides the management to exercise the control based on the value of goods to the total
composition.

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