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ACKNOWLEDGEMENTS
I owe my gratitude to M R Sir, S C Sir and I M Sir, In the preparation of this
assignment I had take their precious suggestions, advantage of the feedback of the
various books available in the library and as well as in internet also. I also expect
some more suggestion from them to improve my forthcoming assignment and
how to improve my skill in the preparation of other projects. This assignment has
made me a better learner, and I hope the readers will entertain similar sentiments
about the book after reading it.
IMPORTANCE OF INVENTORY:
P 2,40,000 4 60,000
Q 24,000 4 6,000
R 2400 4 600
TOTAL 2,66,400 12 66,600
Suppose A-B-C analysis followed and the number of orders will be according to the
importance of the items. If the number of orders is 8, 3 and 1, for items P, Q and R
respectively, then the average inventory will be as follows:
P 2,40,000 8 30,000
Q 24,000 3 8,000
R 2400 1 2400
TOTAL 2,66,400 12 40,400
It is thus noted that even though the total number of orders is the same, the average inventory
has been reduced significantly by recognizing that ‘A’ items should be ordered more
frequently.
ABC analysis is illustrated in the following:
A firm has 7 different items in its inventory. The average number of each of these items held,
along with their unit costs, is listed below. They wishes to introduce an ABC inventory
system. Suggest a breakdown of the items into A, B and C classification.
Item number Average number of units in inventory average cost per unit
1 20,000 Rs. 60.80
2 10,000 ,, 102.40
3 32,000 ,, 11.00
4 28,000 ,, 10.28
5 60,000 ,, 3.40
6 30,000 ,, 3.00
7 20,000 ,, 1.30
Solution The A B C analysis is presented in the following table:
The mechanics of classifying the items into ‘A’, ‘B’ and ‘C’ categories is described in the
following steps:
1. Calculate rupee annual issues for each item in inventory by multiplying the unit
cost by the number of units issued in a year. It is assumed that the issues and
consumption are the same.
3. Prepare a list from these ranked items showing item no., unit cost, annual units
issued and annual rupee value of units issued.
4. Starting at the top of the list, compute a running total, item-by-item issue value and
the rupee consumption value.
5. Compute and print for each item the cumulative percentages for the item count and
cumulative annual issue value.
1. 5 per cent to 10 per cent of the top number of items account for about 70 per cent of
the total consumption value. These items are called ‘A’ items.
2. 15 per cent to 20 per cent of the number of items account for 20 per cent of the total
consumption value. These items are called ‘B’ items.
3. the remaining number of items account for the balance 10 per cent of the total issue
value. These items are called ‘C’ items.
PTO.
ANNUAL COST CUMMULATIVE
ITEM % ITEM COST %
ABC [Rs.] COST [Rs.]
1 90000 90000
10 % 70 %
A 2 50000 140000
3 20000 160000
N 4 7500 167500
20 % 20 %
A 5 7500 175000
6 5000 180000
L
7 4500 184500
Y 8 4000 188500
S 9 2750 191250
10 1750 193000
I 11 1500 194500
S 12 1500 196000
13 500 196500 10 %
70 %
14 500 197000
15 500 197500
WORK 16 500 198000
SHEET 17 500 198500
18 500 199000
19 500 199500
20 500 200000
PTO.