# ABC analysis is an inventory categorization method which consists of dividing items into three…

ABC analysis is an inventory categorization method which consists of dividing items into three categories (A, B, C):

1. Class A represents the most valuable items
2. Class C represents the least valuable ones

This method aims to draw managers’ attention to the critical few (A-items) not to the trivial many (C-items). The table below provides a brief summary of ABC analysis.

 Percentage of items Percentage value of annual usage Class A items About 20% About 80% Close day to day control Class B items About 30% About 15% Regular review Class C items About 50% About 5% Infrequent review

1. Perform ABC analysis for the following information based on usage as percent of total usage. Use Excel to perform the ABC analysis. Apply formulas for calculation (don’t type numbers/calculated answer where formula is applicable.)
 Item number Unit cost Annual demand Total cost per year 101 5 48,000 240,000 102 11 2,000 22,000 103 15 300 4,500 104 8 800 6,400 105 7 4,800 33,600 106 16 1,200 19,200 107 20 18,000 360,000 108 4 300 1,200 109 9 5,000 45,000 110 12 500 6,000 Total usage 737,900
1. Describe three advantages of ABC analysis.

Prepare this assignment in a Microsoft Excel document.

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