- Practice · 6 marks
ABC analysis from annual consumption data
Short answer
ABC analysis: Class A (I2, I4, I3) = 70.1% value; Class B (I1, I8, I6) = 18.2%; Class C (I10, I9, I5, I7) = 11.6%. A items need tight control, B moderate, C loose.
Ten items of a store have the annual usage and unit cost below. Carry out an ABC analysis (A: about 70% of value, B: next about 20%, C: the rest) and explain how each class should be controlled.
| Item | I1 | I2 | I3 | I4 | I5 | I6 | I7 | I8 | I9 | I10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Annual usage (units) | 5000 | 1500 | 2400 | 300 | 8000 | 700 | 1200 | 200 | 900 | 4000 |
| Unit cost (Rs) | 2 | 40 | 8 | 100 | 0.50 | 12 | 3 | 50 | 5 | 1.50 |
Method
ABC analysis ranks items by annual consumption value (usage x unit cost) and divides them into classes; a few items carry most of the money value.
Step 1: annual value
Total value Rs 155,700. Items are sorted in descending order of value.
| Rank | Item | Usage | Cost (Rs) | Value (Rs) | % of total | Cumulative % |
|---|---|---|---|---|---|---|
| 1 | I2 | 1500 | 40 | 60,000 | 38.5 | 38.5 |
| 2 | I4 | 300 | 100 | 30,000 | 19.3 | 57.8 |
| 3 | I3 | 2400 | 8 | 19,200 | 12.3 | 70.1 |
| 4 | I1 | 5000 | 2 | 10,000 | 6.4 | 76.6 |
| 5 | I8 | 200 | 50 | 10,000 | 6.4 | 83.0 |
| 6 | I6 | 700 | 12 | 8,400 | 5.4 | 88.4 |
| 7 | I10 | 4000 | 1.5 | 6,000 | 3.9 | 92.2 |
| 8 | I9 | 900 | 5 | 4,500 | 2.9 | 95.1 |
| 9 | I5 | 8000 | 0.5 | 4,000 | 2.6 | 97.7 |
| 10 | I7 | 1200 | 3 | 3,600 | 2.3 | 100.0 |
Step 2: classes
| Class | Items | % of items | % of value |
|---|---|---|---|
| A | I2, I4, I3 | 30% | 70.1% |
| B | I1, I8, I6 | 30% | 18.2% |
| C | I10, I9, I5, I7 | 40% | 11.6% |
(Class B value = Rs 28,400 and class C value = Rs 18,100 out of Rs 155,700.)
Control policy
- A items: tight control; accurate records, frequent review, small lots and careful forecasting, strict approval, low safety stock, close supplier follow-up.
- B items: moderate control; periodic review, normal records, reasonable safety stock.
- C items: loose control; simple records, bulk ordering or a two-bin system, large safety stock, infrequent review.
Answer: A = I2, I4, I3 (70.1% of value); B = I1, I8, I6 (18.2%); C = I10, I9, I5, I7 (11.6%).
✓ Answer checked by Claude Opus 5.5 (high effort)
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