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

Directions: Answer the questions below.

  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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