EOQ = where/ A= Annual usage units Q= Ordering cost per order C= Annual carrying cost of one unit i.e. carrying cost percentage p.a. x cost of one unit. Q7) ABC Classification Ans. Meaning: ABC Classification or Analysis is a system of inventory control. It helps to control different items of stores classified on the basis of the investment involved usually the item are divided into three categories according to their importance, namely, their value and frequency of replenishment during a period. 1) of items consists of only a small percentage i.e. about 10% of the total items ‘A’ category handled by the stores but require heavy investment about 70% of inventory value, because of their prices or heavy requirement or both. 2) categories of items are controlled to lesser degree than for of items. The ‘B’ ‘A’ category orders for the items in this category may be placed after reviewing their situation periodically. 3) category of items need not be controlled constantly. Order for items in this group may be ‘C’ placed either after six months or once in a year, after ascertaining consumption requirements. Advantages: The advantages of ABC analysis are as shown below: 1) It ensures UN interrupted production as well as minimum investment in inventories of stocks of materials. 2) The cost of purchase, receipt and storage is minimized. 3) Management items is saved sine attention need b paid only to the most valuable item rather than all the items. This is known as the principle of management by exception. 4) Much of the routine purchase work can be handled by clerical staff. Q8) Distinction Periodic Inventory System Perpetual Inventory System 1 This system is based on physical It is based on book records. verification. 2 This system provides information about If provides continuous information about stock stocks and cost of goods sold at a and cost of sales. particular date. 3 This system determines first, inventory It determines first, cost of goods sold and, and, computes cost of goods sold as computer stock as balancing figure. balancing figure. 4 Cost of goods sold includes loss of goods Closing inventory includes loss of goods as all as goods not in stock are assumed to be unsold goods are assumed to be in inventory. sold
EOQ = where/ A= Annual usage units Q= Ordering cost per order C= Annual carrying cost of one unit i.e. carrying cost percentage p.a. x cost of one unit. Q7) ABC Classification Ans. Meaning: ABC Classification or Analysis is a system of inventory control. It helps to control different items of stores classified on the basis of the investment involved usually the item are divided into three categories according to their importance, namely, their value and frequency of replenishment during a period. 1) ‘A’ category of items consists of only a small percentage i.e. about 10% of the total items handled by the stores but require heavy investment about 70% of inventory value, because of their prices or heavy requirement or both. 2) ‘B’ categories of items are controlled to lesser degree than for ‘A’ category of items. The orders for the items in this category may be placed after reviewing their situation periodically. 3) ‘C’ category of items need not be controlled constantly. Order for items in this group may be placed either after six months or once in a year, after ascertaining consumption requirements. Advantages: The advantages of ABC analysis are as shown below: 1) It ensures UN interrupted production as well as minimum investment in inventories of stocks of materials. 2) The cost of purchase, receipt and storage is minimized. 3) Management items is saved sine attention need b paid only to the most valuable item rather than all the items. This is known as the principle of management by exception. 4) Much of the routine purchase work can be handled by clerical staff. Q8) Distinction Periodic Inventory System Perpetual Inventory System 1 This system is based on physical verification. It is based on book records. 2 This system provides information about stocks and cost of goods sold at a particular date. If provides continuous information about stock and cost of sales. 3 This system determines first, inventory and, computes cost of goods sold as balancing figure. It determines first, cost of goods sold and, computer stock as balancing figure. 4 Cost of goods sold includes loss of goods as goods not in stock are assumed to be sold Closing inventory includes loss of goods as all unsold goods are assumed to be in inventory.