---
title: "ABC analysis from annual consumption data"
subject: "Industrial Engineering and Management"
chapter: 4
key: "semester_6/industrial_engineering_and_management:abc-analysis-of-inventory-items"
source: https://www.bctengineer.com/q/semester_6/industrial_engineering_and_management/abc-analysis-of-inventory-items
site: BCT Engineering
---

# ABC analysis from annual consumption data

Industrial Engineering and Management · Chapter 4: Inventory Control

- Asked in: year not given, 6 marks
- Video: [Problems on ABC Analysis - Part 1 of 2 | Operations Management | SNS College of Technology](https://www.youtube.com/watch?v=QMOCnKDYAps) — Prabakaran V
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/industrial_engineering_and_management/abc-analysis-of-inventory-items
- Whole chapter: https://www.bctengineer.com/md/semester_6/industrial_engineering_and_management/chapter-4

## Question

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 |

## 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.

## Answer

#### 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%).**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. On what basis does ABC analysis rank items?
   A. Unit cost only
   B. Annual usage only
   C. Annual consumption value (usage x unit cost)
   D. Alphabetical order
   Answer: C. A few items carry most of the money value. (Key point: ABC basis)

2. Which items form class A?
   A. I2, I4, I3
   B. I1, I8, I6
   C. I10, I9, I5, I7
   D. I5, I7
   Answer: A. I2, I4 and I3 reach a cumulative 70.1% of value. (Key point: Class A)

3. How should class A items be controlled?
   A. Loose control, large safety stock
   B. Tight control with accurate records and frequent review
   C. No records
   D. Two-bin system
   Answer: B. A items need strict approval, careful forecasting and low safety stock. (Key point: Class A control)

4. How are class C items controlled?
   A. Strict daily review
   B. Individual forecasting
   C. Loose control with simple records, bulk or two-bin system
   D. Not stocked
   Answer: C. C items carry little money value, so simple control is enough. (Key point: Class C control)

## Related in Industrial Engineering and Management

- [EOQ, total cost and reorder point numerical](https://www.bctengineer.com/question.md?key=semester_6%2Findustrial_engineering_and_management%3Aeoq-numerical-reorder-point) — Industrial Engineering and Management, chapter 4
- [Break-even cost comparison of three sites](https://www.bctengineer.com/question.md?key=semester_6%2Findustrial_engineering_and_management%3Abreak-even-analysis-plant-location) — Industrial Engineering and Management, chapter 2

## Related in other subjects

- [RECORD.txt item cost with VAT](https://www.bctengineer.com/question.md?key=semester_1%2Fcomputer_programming%3Afile-record-txt-invoice) — Computer Programming, chapter 10
- [Annual working cost of power station (a, b, c)](https://www.bctengineer.com/question.md?key=semester_7%2Futilization_of_electrical_energy%3Apower-station-annual-cost-abc) — Utilization of Electrical Energy, chapter 6
- [Annual cost and saving with pf correction (400 kVA)](https://www.bctengineer.com/question.md?key=semester_7%2Futilization_of_electrical_energy%3Aindustry-50000-units-pf-saving) — Utilization of Electrical Energy, chapter 6
- [Inventory planning and ABC classes from data](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aabc-table-inventory-2077) — Construction Management, chapter 3