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Unit 3: Material Control





          3.2.2 ABC Analysis                                                                    Notes


          Normally the materials are classified on the basis of the following covenants viz
               Volume and
               Value

          Based on the following basis, the materials are classified into three categories:
               Lesser percentage in volume and Greater percentage in Value – Category A

               Greater percentage in volume and Lesser percentage in Value – Category B and
               Percentage in volume and Percentage in value are more or less similar – Category C

                 Example:  A store has 4,000 items of consumption and a monthly consumption of
          ` 20,00,000. 320 items will have a consumption of ` 15,00,000. 500 items will account for ` 4,00,000
          and 2,680 items consume material worth ` 1,00,000 only.

                                       Table of Items and Value
               Group         No. of Items   % of Items       Value `       % of Value
                 A              320            8%           15,00,000        75%
                 B              1000           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?

                  Group A items are high valued items among the other items of the enterprise,
                 requiring greater monitoring and controlling.
                  Group B items are comparatively lesser in value among the three items given next to
                 the Group A, require less rigid control and monitoring.
                  Group C items are the major volume of items among the 4000 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         1000     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.





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