Explain ABC Analysis
Give a brief introduction of the term ‘ABC Analysis’ and also write down is merits?
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ABC analysis (or Always Better Control) is a method which classifies the different items of inventory along with their significance. It is a logical method of inventory control that focuses on the most important inventory items. For instance: A class comprises those items that are fewer in number but most significant in nature. B class comprises relatively fewer significant items. C class comprises big number of items that are fewer significant. The significance of various items is decided on the basis of following factors which are illustrated below: - Vital nature of inventory - Quantity of investment - Value of material consumed.
Accounting Theory 7edition, by Godfrey J., Hodgson A., Tarca A., Hamilton J., and Holmes S. Chapter 2: Theory in Action 2.2 “Normative Theories of Investment” Chapter 3: Theory in Action 3.1 “Companies should come clean on the value of leases on their books” Chapter 5: Theory in A
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